The ATO Is Using Benchmarks For Tax Audits

The Australian Taxation Office's benchmarking process is now being used to check taxation assessments.  SMEs need to keep accurate, clear records of their business affairs to satisfy taxation officer's reviews.

If you fail to keep proper records and the business' financial performance is outside the benchmarks established for a particular industry, then the onus will be on the individual operator to prove that the Australian Taxation Office should not apply the industry benchmarks to that particular small business.  This will prove to be extremely difficult if proper records have not been kept to support transactions for the business.  The ATO is using the benchmarks business evaluation as part of its monitoring of the "cash economy".  The ATO have instigated a program whereby thousands of small businesses will be monitored over the next 12 months and, if a business appears to not be performing within the "norm" established by the ATO benchmarks, then the small business owner will probably be subjected to a "finely tuned" audit. 

The ATO has issued guidelines as to how they will undertake benchmarking audits.  These include:


  • a letter will be sent to the taxpayer, with a copy to the tax agent, advising that the taxpayer's business is outside the benchmarks for that particular industry;
  • if deemed necessary, the ATO will request the client's records be submitted to the ATO for review.  If the records are found to be acceptable there will be no further action taken by the ATO.  (This highlights the necessity to ensure that proper records have been kept of all business transactions).
  • should the ATO deem that records are inadequate, the taxpayer will be advised that he/she will need to produce further records to support the variation from the ATO's benchmark for that industry.  Without proof, or other compelling reasons, the ATO will then apply the benchmark to determine the taxpayer's assessable income.
  • if a small business receives a request from the ATO, relative to a benchmark audit, the taxpayer will have 14 days to respond to the request.

If you have any concerns as to how your business will perform against the ATO's benchmark for your industry and you would like us to conduct a review of your business systems and records, please contact us.

 Debtors' Management Is Important

 If you are giving credit to your customers, then an effective debtors' management is very important:
  • Ensure any payment arrangements with a debtor are confirmed in writing, including details of any key dates.
  • Follow up with the customer to ensure that payments are made on the key dates.
  • Review dealings with a private company.
  • Obtain individual directors' guarantees.
  • Ensure tax invoices are prepared correctly in accordance with the customers'/clients' format requirements and sent to the customers'/clients' promptly by the stipulated dates.
  • Ensure follow up of customers'/clients' invoices from the due date to ensure prompt payment or, if the customer/client has a query, resolve the query as soon as possible.
  • Monitor debtors' aged analysis on a weekly basis, calculate debtors' days outstanding and maintain your business' terms of trade (e.g.30 days).
  • If payment is not received, ensure prompt referral of problem debtors to a debt collection agency.
  • Utilise a "debtors' days outstanding chart" to identify the cashflow improvements that would occur if debtors paid in accordance with your stated debtors payment policy. 

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