Identifying businesses outside of the benchmarks
We use benchmarks and other risk indicators to identify businesses that may be avoiding their tax obligations by not reporting some of their income.
We compare information reported in business tax returns with the key performance benchmark for their industry. Their industry is based on:
- business industry codes
- the description of the main business activity on their tax return
- the business's trading name.
When we choose to investigate a business's tax records, we use a wide range of factors. We never use the benchmarks in isolation when deciding to review a business or when looking at the business's records.
Example: identifying a business outside of the benchmark
A supermarket operator was selected for audit due to several issues identified through our risk modelling.
When looking at the small business benchmarks, their cost of sales to turnover ratio was 88%. This was high compared to the key benchmark range of 72% to 78% in their industry.
During the audit, tax officers found the business directors had been operating for several years without reconciling their sales and banking records.
They submitted a voluntary disclosure, which usually means we would reduce administrative penalties and interest charges. However, the amount disclosed did not match our findings, so it was not accepted.
Given the length of time the owners had been in business and their level of experience (they were also co-directors of another company), 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.
End of example