If the taxman’s set standard just won’t mesh with your business’s outcomes, you’d better seek advice. Benchmarks are not just instructive, but can be almost forensic in the taxman’s hands. By TERRY HAYES
By Terry Hayes
If the taxman’s set standard just won’t mesh with your business’s outcomes, you’d better seek advice. Benchmarks are not just instructive, but can be almost forensic in the taxman’s hands.
Any help in legally and properly complying with the tax laws is always appreciated, no matter where it comes from.
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In an effort to help businesses comply, the tax office from time to time releases benchmarks for certain industries. The benchmarks indicate what the tax office expects would be a range of income for businesses working directly with household consumers.
Businesses themselves can also use the benchmarks to:
- Compare their performance to the rest of the industry.
- Check that their tax records accurately reflect their business practices.
The tax office has recently released benchmarks for the concreting industry and for the taxi industry, adding to those already available for the floor sanding and polishing, roof tiling, painting and metal roofing industries.
Businesses can use the relevant benchmark tool to self-assess their business performance. In doing so, they may require some or all of the following information:
- Tax invoices for jobs done and purchases.
- Quote book.
- Work diary.
- Statement of purchases from suppliers.
- Bank statements.
- Cheque book.
A business simply needs to print out the relevant benchmarking tables, available from the tax office website, and insert the relevant information.
These benchmarks apply to concreters who work directly with household customers. They indicate an expected range of income for concreters based on the labour and materials used, such as average labour charge per day, average job size (square metres), price per square metre, days to complete average job and so on.
Some examples provided by the tax office illustrate how the benchmarks can be used.
Kevin and Joe run a concreting business. They work on household jobs only, providing both plain and stencilled concrete.
Going through statements from their suppliers, Kevin estimates they have purchased 492 cubic metres of concrete during the year. Using the benchmark concrete coverage rate and the average benchmark price per square metre, Kevin estimates a total income of $295,200 for the year.
Kevin and Joe’s records only show income of $186,700, which is well below the benchmarks. Kevin can’t see any reason why their performance would be so far outside the benchmark, so he contacts his tax agent for advice on record keeping.
In another example, Richard runs a concreting business with one employee doing basic domestic jobs. His records show that he purchased 450 standard sheets of steel mesh in the year.
Using the benchmark coverage rate, Richard should have laid approximately 5400 square metres of concrete. Using the benchmark average price per square metre, Richard’s sales should be around $324,000.
Richard’s records show reported income of $320,000, which is within the benchmarks.
The tax office says these benchmarks indicate an expected range of income for taxi operators and drivers based on kilometres travelled or fuel used, such as total kilometres travelled during year, cents per kilometre rate for 2008 (which is $1.14 per km), total fares and so on.
Several examples highlight the issues involved.
Tony is a taxi operator and owns five taxis, each travelling an average of 160,000 kilometres per year. The total distance travelled for all five taxis is 800,000 kilometres.
Tony checks his estimated income against the tax office benchmarks. He receives 50% of the fares for each taxi. His records show total fares of $780,000. Tony’s share of the fares is $390,000.
Using the 2008 cents per kilometre rate of $1.14, he calculates the total fares for all five taxis should be $912,000. Tony calculates that his share of the total should be $456,000 under his standard 50% bailment arrangement.
As Tony’s recorded income doesn’t match the benchmarks, he decides to seek advice about how he keeps his business records.
In another example, a taxi driver has purchased 12,000 litres of LPG. According to the fuel usage benchmarks, of 18 litres per hundred kilometres the taxi should have travelled about 66,670 kilometres. Using the benchmark cents per kilometre rate, the driver should have taken total fares of $76,000. His records show total fares of only $74,800.
As this is close to the benchmark, the driver is reasonably confident that he has correctly recorded all his fares.
The benchmarks provided by the tax office are meant to be helpful. They are, however, not set in concrete, and businesses are quite entitled to use different figures as long as they can reasonably justify them if called to do so by the tax office.
Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.