Electrical services - ATO benchmarks
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.
“For electrical services businesses, the ATO benchmark most commonly used to assess reporting patterns is total expenses as a percentage of turnover.”
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.
“If your business ratios sit outside the benchmark ranges, it doesn’t necessarily mean there’s non-compliance — but you should ensure you have clear records to support your results.”
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
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
ATO benchmarks give a snapshot of what is typical for electrical services businesses.
They provide expected ranges for key ratios like total expenses relative to turnover, helping businesses and advisers assess financial reporting.
Total expenses compared to turnover is the primary benchmark for the industry.
This ratio reflects the balance between costs and revenue that is typical for electrical services operations.
Benchmarks also cover components such as labour, materials and motor vehicle expenses.
Each element of business costs can be contextualised against industry norms to reveal areas that are out of the ordinary.
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Frequently Asked Questions
What are ATO benchmarks for electrical services businesses?
ATO benchmarks are industry-specific financial ratios that compare typical expenses and cost components (such as total expenses, labour, materials and motor vehicle costs) to turnover for electrical services businesses.
Why does the ATO use industry benchmarks?
The ATO uses benchmarks to highlight unusual reporting patterns that may indicate under-reported income or overstated deductions. They help assess whether a business’s tax return aligns with what is typical in the industry.
What is the key ratio used for electrical services?
The most referenced ratio for electrical services is total expenses as a percentage of turnover, which shows typical cost levels relative to revenue in the industry.
If a business falls outside the benchmark ranges, is it automatically non-compliant?
No. Falling outside the benchmark only indicates atypical results compared with the industry. Businesses can still be compliant if they have legitimate reasons and strong records to justify their financial ratios.
How can businesses apply these benchmarks in practice?
Businesses can calculate their own expense ratios and compare them with the benchmark ranges to identify areas that may need review, correct errors or adjust business strategies.
What is the key benchmark ratio for electrical services?
The key benchmark ratio is total expenses to turnover, as it’s considered the most accurate predictor of business turnover.
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