The ATO can use small business benchmarks to help identify businesses that are not paying their fair share of tax. This is done by comparing information reported in your business tax returns with the key performance benchmark for your industry.

Understating or overstating income and expenses can be costly. For example, when reviewing a supermarket operator, the ATO found that the operator’s cost of sales to turnover ratio was 88%. This was high compared to the key benchmark range of 72% to 77% in their industry.

The ATO identified that the business directors had been operating for several years without reconciling their sales and banking records.
When the ATO queried their income tax return, the business lodged a voluntary disclosure, informing the ATO they’d made a mistake. However, the amount disclosed did not match the ATO’s findings, so it was not accepted.

Given the length of time the owners had been in business and their level of experience it was reasonable to expect them to keep correct records. They were required to pay over $275,000 in tax and $44,000 in penalties.