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Electrical services – ATO benchmarks

Posted by Northadvisory on August 22, 2016

Benchmarks are one of the indicators that the ATO uses to identify businesses for review or audit. The ATO releases performance benchmark rates each year for businesses across a number of industries to compare their operations against industry expectations.

We review the performance benchmark rates for businesses in the electrical services industry which typically install, repair, maintain, assemble, identify and design electrical equipment and networks.

These benchmarks do not apply to auto electricians or air conditioning specialists.

What are the benchmarks for the electrical services industry?

The key benchmark ratio for this industry is total expenses to turnover. This ratio is likely to be the most accurate predictor of business turnover.

Key benchmark ratio

Annual turnover range

$50,000 – $200,000

$200,000 – $500,000

More than $500,000

Income tax return

Total expenses/turnover

52% – 68%

64% – 77%

77% – 88%

Average total expenses

60%

70%

83%

Activity statement

Non-capital purchases/total sales

40% – 55%

45% – 57%

47% – 59%

 

The following benchmarks can be used as a guide for businesses to review their performance and business practices against other similar businesses.

Benchmark ratio

Annual turnover range

Income tax return

$50,000 – $200,000

$200,000 – $500,000

More than $500,000

Cost of sales/turnover

23% – 34%

28% – 37%

31% – 41%

Labour/turnover

19% – 32%

17% – 28%

24% – 35%

Motor vehicle expenses/turnover

6% – 9%

4% – 6%

3% – 4%

How do I determine whether I am within the benchmark range?

We provide a calculator tool which calculates the following key financial ratios using income tax return data:

• cost of sales/turnover
• total expenses/turnover
• labour cost/turnover
• motor vehicle expenses/turnover

and the following ratio based on data included in the activity statement of a business:

• non-capital purchases/total sales.

Please note that the ATO has not provided a rent/turnover ratio in respect of electrical services.

ATO Benchmark Calculator – Electrical Services

What it means to be outside the benchmarks

In this case, if you believe your tax affairs are correct you must ensure that you have good records to support your tax return.

If a business does not have evidence to support their return, the ATO may use the benchmarks to determine that the business has been under-reporting income and impose additional tax and penalties.

Reporting above a benchmark range

If your business is reporting above the benchmarks, it means your expenses are high relative to income. This may indicate that:

• you have high wastage
• your competitors may be able to source inputs at lower cost than you
• your volume of sales is too low (for rent and possibly labour)
• your mark-up is lower than your competitors
• you have not recorded all your sales, or
• your internal cash controls may need to be examined.

Reporting below a benchmark range

If your business is reporting below the benchmarks, it means your expenses are low relative to sales. This may indicate that:

• your expenses may be recorded under the wrong label
• some of your expenses may have not been recorded
• your mark-up is higher than your competitors, or
• you have less wastage.

If you have any questions or other enquires, please contact:

Martin van der Saag

Director
T: 02 9984 7774
E: martinv@northadvisory.com.au

Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au