The ATO has warned it will be increasing enforcement activity in the lead up to the end of financial year (EOFY) and will visit 4,000 companies to conduct black economy checks.
The tax office has updated benchmark data for more than 100 industries, based on data from more than 1.5 million small businesses.
The benchmarks are used by the ATO’s automated systems to detect abnormal business activity, which may be evidence of fraud or other forms of non-compliance with tax law.
Firms which fall too far outside of the benchmark data for their industry could be flagged for further investigation by the tax office.
In a new release, strangely themed around aquatic activities, the ATO likened small businesses to swimmers at the beach, saying the benchmarks will help firms “swim between the flags”.
“We want small businesses to stay afloat, so our benchmarks are a great way to ensure your business is viable, competitive and not at risk of venturing into rough water,” assistant commissioner Peter Holt said in a statement.
“Think of the benchmarks like the red and yellow flags on the beach. If you stay between the flags, you’ll be less likely to attract our attention.”
The retail, accommodation, building and manufacturing benchmarks have been updated, among many others.
Tax office agents will be visiting companies in the lead up to EOFY, to conduct spot checks for black economy activity.
The ATO separately confirmed 4,000 businesses will be spotlighted in the compliance activity before EOFY.
“The ATO will be visiting businesses around Australia as part of our work to protect honest businesses from unfair competition by addressing black economy activities,” an ATO spokesperson said.
“ATO staff will be talking to local businesses to understand how they operate and identify any issues where help is required.
“For businesses that are genuinely trying to do the right thing, we will be providing education and assistance to help them get back on track. The visits can help us identify who needs extra support to make it easier for them to comply.”
The ATO also has 10,000 visits scheduled for the financial year 2019-20.
Holt said SMEs which report minimal profit while a business owner “seems to be maintaining a lifestyle far exceeding their personal income” is a common red flag for the ATO.
“The black economy is estimated to be costing the community as much as $50 billion, which is approximately three per cent of Gross Domestic Product (GDP).
“This is money that the community is missing out on for vital public services, like lifesavers on the beach,” Holt said, returning to the aquatic theme.
The benchmarks can also be an interesting way to compare small-business performance.
For instance, the clothing retail benchmark, based on data from the 2016-17 financial year, show rent is 12-20% of turnover for firms with $65,000 to $250,000 in annual turnover.
Coffee shops turning over between $65,000 to $250,000 each year generally paid between 18-20% of revenue in labour costs in 2016-17.