The Australian Taxation Office (ATO) benchmarking process means that, for small businesses, the quality of taxpayers’ record-keeping is about to take the spotlight.
In statements released, the Australian Taxation Office has said that: “if taxpayers’ keep good records then the taxpayer has nothing to fear. Fail to keep good records and the onus will be on the taxpayer to prove the ATO wrong, if and when they apply the benchmark and issue a default assessment”
What this means for businesses is that if the taxpayer can not substantiate their lodgments they must prove the ATO wrong or else the industry set benchmark will be applied by the ATO.
For example: John runs a small sandwich shop with a turnover of $150,000. The key ratio’s the ATO would be looking at for a sandwich shop would be Labour/Sales, Rent/Sales and Cost of Goods Sold/Sales. All of Johns ratio’s are substantially different to that of the ATO. John receives a letter from the ATO stating that his lodgments are different to the benchmarks. Does John need to worry?
Well this depends on the accuracy of his lodgment. If they are correct and John is able to substantiate his claims then whether they fall outside the benchmarks or not he is correct and can back up his claims. However, if he failed to keep records of his claims then the ATO will enforce the benchmarks set.
The ATO says that in dealing with the cash economy it isn’t their intention to issue arbitrary default assessments, and that there is a robust process they follow in relation to benchmarking audits.
Many businesses have already received letters from the Australian Taxation Office advising that the previous years assessments have fallen outside the benchmark for that industry. This has caused unwanted alarm in many cash businesses across Australia. However, as long as the tax payer has good record keeping they have no reason to be alarmed.
Additional information can be found about the business benchmarking process directly on the ATO Website.