Australia Small Business Benchmarks Guide

the Australian small business benchmarks. The guide covers: the ATO benchmarks (the "small business benchmarks by the industry") — the ATO publishes the "small business benchmarks" (the "annual benchmarks") for over 100 industries to help the business owners compare the performance against the similar businesses; the benchmarks show the typical ratios for: (a) the "cost of goods sold to the turnover" (the "COGS ratio"), (b) the "total expenses to the turnover", (c) the "rent to the turnover", (d) the "wages to the turnover", (e) the "motor vehicle expenses to the turnover"; the benchmarks are based on the "tax return data" and the "BAS data" from the businesses in the same industry; the using the benchmarks for the business (the "self-assessment tool") — the business owner can use the benchmarks to: (a) compare the own ratios against the industry average, (b) identify the areas of the high or the low performance, (c) check the reasonableness of the GST and the income reporting, (d) prepare for the potential ATO compliance check; the benchmarks are available on the ATO website (the "Small business benchmarks" page) and are updated annually (the "2023-24 benchmarks" are the latest); the ATO use of the benchmarks (the "compliance and the audit selection") — the ATO uses the benchmarks to: (a) identify the businesses with the "outlier ratios" (the "ratios significantly above or below the benchmark range"), (b) select the businesses for the "audit" or the "compliance check", (c) estimate the "income of the business" if the records are inadequate (the "benchmark estimate" — the ATO can estimate the income based on the benchmark ratios and the known expenses).

Key Benchmark Ratios by Industry

Cafes and restaurants: The typical benchmarks for the cafes and the restaurants (the "industry code 45110"): the "cost of goods sold" at 30% to 40% of the turnover, the "wages" at 25% to 35% of the turnover, the "rent" at 5% to 12% of the turnover, the "total expenses" at 85% to 95% of the turnover.
Building and construction: The typical benchmarks for the building and the construction (the "industry code 30110"): the "cost of goods sold" at 55% to 75% of the turnover, the "wages" at 12% to 22% of the turnover, the "total expenses" at 82% to 92% of the turnover, the "motor vehicle expenses" at 2% to 5% of the turnover.
Hairdressing and beauty: The typical benchmarks for the hairdressing and the beauty services (the "industry code 95110"): the "cost of goods sold" at 10% to 20% of the turnover, the "wages" at 35% to 50% of the turnover, the "rent" at 8% to 15% of the turnover, the "total expenses" at 80% to 92% of the turnover.

For the business deductions and the expenses, see our Business Expenses Guide →.

Responding to the Benchmark Inquiry

ATO benchmark letter: The ATO may send the "benchmark letter" to the business whose ratios are outside the expected range. The letter asks the business to review the reporting and to correct any errors. The business should respond within the "28 days" with the explanation or the corrected data.
Reason for the deviation: The business whose ratios deviate from the benchmarks should document the reasons: (a) the "different business model" (the "online-only vs the retail storefront"), (b) the "location differences" (the "regional vs the city"), (c) the "business lifecycle" (the "startup phase vs the mature phase"), (d) the "exceptional circumstances" (the "COVID-19 impact, the natural disaster, the economic downturn").
Benchmark estimate audit: If the ATO cannot verify the business income due to the inadequate records, the ATO may use the "benchmark estimate" (the "estimate of the income based on the industry benchmark ratios and the known expenses"). The business can object to the estimate by providing the "complete and the accurate records".

For the tax audit and the ATO compliance, see our Tax Audit & Appeals Guide →.