Taxman pinpoints business margins

It will be harder to channel money through trust structures in the future.

Inland Revenue has begun publishing performance benchmarks it says will help businesses identify potential trouble spots and opportunities for improvement.

The benchmarks are available on the department's website and cover 16 industries, including cafes, restaurants, supermarkets, grocery stores and fruit and vegetable retailers.

Benchmarks on the site include gross margin, taxable profit ratio, return on total assets and return on equity.

IRD said a low gross margin could indicate that a business was not charging enough for its products and services, or was paying too much for its supplies and stock.

The benchmarks were calculated by Statistics NZ using Inland Revenue data taken from information reported on tax returns and financial statements of small-to-medium firms with annual turnovers of between $60,000 and $10 million, the department said.

IRD assurance manager Tony Morris said being within or outside of a benchmark range did not indicate that the business was compliant or non-compliant with its tax obligations.

"It is simply one indicator of performance - for example insufficient product mark-up, difficult trading circumstances or different cost or pricing structures from competitors."

Morris said industry benchmarks were not a new concept and IRD already used them, together with other indicators, to identify businesses that had the potential for "tax risk".

IRD said it would release benchmarks for additional industries later this year.

IRD BENCHMARKS

Cafes and restaurants

Small: Annual turnover: $60,000 - $300,000. Gross margin: 46 per cent to 63 per cent of sales.
Medium: Annual turnover: $300,000 - $800,000. Gross margin: 54 per cent to 65 per cent of sales.
Large: Annual turnover: $800,000+. Gross margin: 59 per cent to 68 per cent of sales.

Fruit and vegetable retailers

Small: Annual turnover: $60,000 - $300,000. Gross margin: 17 per cent to 44 per cent of sales.
Medium: Annual turnover: $300,000 - $800,000. Gross margin: 16 per cent to 31 per cent of sales.
Large: Annual turnover: $800,000+. Gross margin: 16 per cent to 28 per cent of sales.