Preventing an ATO Audit: Small Business Benchmarking Essentials

If you are the owner of a Small Business, you need to start your business the right way if you want it to be successful. If your Small Business falls short of the ATO’s Benchmarks, an ATO audit might be forthcoming. On the other hand, benchmarks might be a valuable resource when comparing your small business to others in your market. For these reasons, it is always wise to examine your business ratios.

Small business benchmarks measure how enterprises earning $15 million in revenue perform financially in more than 100 categories. Each benchmarking ratio is given a range to compensate for differences in enterprises based on their business models and geographic locations.  One thing you must remember – you cannot manage something that you cannot measure !!!

Three distinct ranges of turnover for every industry. For example, if your business earns $500,000 annually, your business ratio will range between $300,000 and $600,000.

The ATO then assigns each industry a critical benchmark ratio, like business costs to turnover or total expenses to income. The ATO believes that this ratio is a precise indication of sales costs and expenditures as a percentage of revenue.

ATO Industry or Business Classifications and Benchmarking

The ATO establishes your industry benchmark based on your tax return data, industry code, and activity description of your business. The ATO determines your business’s industry subgroup(s) based on your keywords in the activity description and trade name.

A business can belong to multiple industry subgroups, allowing for the diversification of product lines in some Businesses. Verify that your tax return’s industry code and description accurately represent your kind of business. If not, contact our team at (03) 9374 8400 right away to ensure this, and all your other information is accurate.


The ATO has two distinct sorts of benchmarks:

  1. Performance Benchmarking

Performance benchmarking compares your business’s performance to other businesses in the industry you are classified with using various ratios (as lodged with your Tax Returns). These benchmarks assist the ATO in identifying Businesses that may be underreporting income or potentially lodging incorrect information.

They monitor the ratio of your income tax by measuring sales costs versus revenue, complete expense reports of your rent versus your turnover. In addition, they also check the statement ratio of your business activities, like purchases outside of your principal business, sales without Goods and Services Tax (GST), and annual sales.

  1. Input Benchmarking

An input benchmark or sales turnover calculates your business’ income. It compares it against your block-laying industry average, and the ATO will check if your books match your actual income.

Entrepreneurs who purchase their materials to undertake work for their customers are subject to input benchmarks. These income ranges are based on the total cost of labour and materials used.



Benefits of Benchmarking for Small Businesses

Any business owner subjected to an audit will attest that it can be a stressful ordeal that can last for months. By examining small Business benchmarks, you can ensure that your tax records reflect your business’s income and expenses appropriately.

You can keep track of your business by reviewing your benchmarks frequently throughout the year. The most effective approach to accomplish this is to conduct a review of your financial ratio reports.

Additionally, it’s a good idea to speak to professionals about how your business compares to industry benchmarks. This information should be analysed when we prepare your tax return at the end of the financial year or after each BAS quarter if you are GST registered. The team at MKS Group are highly qualified in analysing and interpreting financial data, we can give you recommendations on how to ensure your benchmarks are being achieved – and more importantly, how you compare to the ATO Benchmarks.




As previously stated, going through an audit can be a very challenging experience. Aside from a simple tax consultation, MKS Group has a team of professionals who can create innovative solutions for your business, focusing on tax reduction, ensuring your business’s growth and expansion.


Our high-quality, end-to-end accounting and bookkeeping services also assist you in scaling your expanding organisation. Get in contact with our team Monday to Friday to find out how you can use benchmarking to your advantage and ensure you are being compliant with the ATO’s benchmarking rules and regulations.


9374 8400


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