The ATO has stepped up its efforts to crack down on the shadow economy and detect underreporting of income or inflated deductions. If you’re a small business owner, it’s more important than ever to understand how your figures compare to others in your industry.
One of the tools the ATO uses to assess whether your business activity stacks up is the Small Business Benchmarks. These benchmarks are calculated from tax returns and activity statements lodged by businesses across Australia. They show average ratios for things like expenses, wages, rent, and cost of goods sold across different industries.
If your figures fall significantly outside the typical range and you can’t explain why, it could raise a red flag and increase your risk of review or audit.
What Are Small Business Benchmarks?
Small Business Benchmarks represent standard financial ratios that the ATO expects to see for different industries. The ATO uses these benchmarks to detect businesses operating in the cash economy or manipulating their financial data.
Key benchmarks include:
- Cost of Sales to Turnover
- Total Expenses to Turnover
- Labour to Turnover
- Rent to Turnover
- Motor Vehicle Expenses to Turnover
These ratios are based on turnover brackets and industry type.
Benchmark Examples
Here are some sample benchmarks across common industries our clients operate in:
| Industry | Annual Turnover Range | Cost of Sales to Turnover | Total Expenses to Turnover | Labour to Turnover | Rent to Turnover | Motor Vehicle Expenses to Turnover |
|---|---|---|---|---|---|---|
| Chiropractic & Osteopathic Services | $65k–$200k | N/A | 38%–54% | 23%–40% | 12%–20% | 3%–5% |
| Automotive Electrical Services | $65k–$250k | 45%–58% | 65%–77% | 18%–28% | 2%–5% | 3%–6% |
| Cafes and Restaurants | $150k–$300k | 35%–45% | 60%–75% | 25%–35% | 10%–15% | N/A |
| Hairdressers | $75k–$150k | 15%–25% | 55%–70% | 40%–50% | 10%–15% | N/A |
| Plumbers | $200k–$500k | 25%–35% | 50%–65% | 20%–30% | 5%–10% | N/A |
Why This Matters
ATO Assistant Commissioner Peter Holt recently commented on the growing sophistication of their tools, saying:
“Our data-matching capabilities mean we can identify businesses that aren’t reporting all of their income or are over-claiming deductions. If your figures don’t line up with what we typically see for your industry, it could trigger further scrutiny.”
He added:
“We’re not just looking at the numbers in isolation. We look at patterns, anomalies and whether the figures make sense compared to similar businesses.”
The ATO’s new data-matching technology is faster and more accurate than ever before. If your expenses or reported income are consistently outside the expected range, you may be contacted for more information.
That doesn’t mean you’ve done anything wrong—but it’s important to ensure your reporting is accurate and you have documentation to support any variances from the benchmark.
How We Can Help
We regularly check our clients’ results against ATO benchmarks to identify potential issues before the ATO does. If you’d like us to review how your business compares to others in your industry—or if you’ve received an ATO letter—we’re here to help.
Proactive review now can avoid reactive stress later.
