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7 The ATO results are based on business taxation returns lodged for the financial year ended 30 June.
Types of Organisations
8 The data examined in this publication cover individuals declaring business income and three types of organisations - companies, partnerships and trusts.
9 A company is a business or organisation incorporated under the Corporations Act 2001. By incorporating (becoming a corporation), a legal entity is created which is a separate body from the owners. A company is capable of performing the same legal action as an individual including holding property and having the capacity to sue and be sued.
10 A partnership involves the relationship that exists between individual persons carrying on a business together with the intention of making a profit. A partnership is not a legal entity separate from the partners. The partners are therefore separately and jointly legally responsible for the actions, debts and obligations of the partnership (though this relates only to the business of the partnership, not to matters outside it). The actions of an individual partner bind all the partners unless it is a limited liability partnership.
11 A trust is formed when a third party, on behalf of the owners, administers money and/or other assets. The money and/or assets are held in a trust fund and may be invested by the trustee who is accountable to, and in a fiduciary relationship with, the beneficiary(ies).
12 The industry classification in use is the 1993 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC) (cat. no. 1292.0). The ANZSIC code is one of the data items supplied by the ATO. The income tax return requires that the main business activity be described and coded.
13 In the vast majority of cases, it is the tax agent rather than the taxpayer who completes the form. The accuracy of the industry data is reliant on the knowledge and accuracy of individuals who may not have a full understanding of the ANZSIC. While there are inaccuracies in the ANZSIC coding of some income tax returns, the ABS and the ATO are working together to ensure higher quality data in future.
14 In addition to the ANZSIC industry codes, the ATO assign their own industry codes to certain records on the business income file which fall outside the industry classification. These codes include non-resident companies, film and video tape royalties derived by non-residents and businesses with an unknown industry. As a result, there is no industry code attached to these records. The ABS has assigned them an unspecified industry code. These make up 1.4% of records in 2000-01.
15 The ATO assigned industry codes used in these experimental estimates have not been checked for consistency with industry codes sourced from the ABS Business Register. Some differences between the industry codes used in these experimental estimates and the other ABS economic survey estimates should be expected.
16 Regardless of the number of locations of a business, the ATO collects the main business address only. Data from businesses that have more than one location are coded to the main business location. The ABS uses the postcode reported as the regional indicator. This should not be a significant problem for the small businesses as we have defined them.
17 Inaccuracies in the reporting of a postcode can occur through coding errors, the provision of an illegal postcode or through the non-reporting of a postcode. These reporting problems occurred on less than 1% of records and further analysis by the ABS has found that in 95% of cases where illegal or incorrect postcodes were detected, changing to a correct postcode would not have resulted in a change in SD. As a result of these investigations the data have been aggregated to SD level to minimise the impact of incorrect reporting on the estimates.
18 A concordance between Australia Post postcodes and the Australian Standard Geographical Classification 2001 statistical divisions was compiled on a geographic ‘best-fit’ basis.
19 This publication includes the data items: number of businesses, total income, total expenses, wages and salaries, superannuation expenses, bad debts, lease expenses, rent expenses and cost of sales. In addition, the data items profit, assets and liabilities are included in the suite of standard tables which are listed at the end of this section.
20 For the full listing of data items available refer to Appendix 2 in the earlier publication Information Paper: Use of Business Income Tax Data for Regional Small Business Statistics - Experimental Estimates, Selected Regions, Australia 1995–96 to 1997–98 (cat. no. 5675.0).
21 There are several factors affecting data quality. ATO data are obtained as an administrative by-product and reference back to the originating businesses is not possible because the ABS is not involved in the collection of the data. While accounting processes are subject to standards, there remains a great deal of flexibility available to businesses in the accounting policies and practices they adopt. Differences in accounting policy and practices across businesses and industries can lead to inconsistencies in the data. Inaccuracies in the data may occur because of imperfections in reporting by those who complete the income tax returns.
22 The ATO method for dealing with businesses that have not completed their tax returns also has an effect on the consistency of the estimates as a time series. The ATO either bring forward the previous year’s data or leave the data as zero if the business does not have an ATO history.
23 There is also the potential for ANZSIC and postcode miscoding. These issues have been covered in more detail in the industry classification and regional indicator paragraphs above.
24 The above limitations should be considered when interpreting the data.
25 To ensure consistency the ABS conducted a series of edit checks on certain data items. Overall, the business income tax files were of a high quality, however in some cases remedial action was required due to either input errors or the non-reporting of certain data items. In these cases, data were derived or imputed. For example, where wages and salaries were reported but superannuation expenses were not, the ABS imputed the superannuation expenses for those records, according to industry.
26 The majority of edits were performed on the major income and expense data items therefore care needs to be taken when using items other than income and expenses as they may not have undergone editing.
Comparison with other data
27 The ABS has compiled business counts on a number of different bases for inclusion in a range of publications. These include:
28 Each of these publications provides a profile of business demographics from a different perspective. Differences in scope, coverage, timing and business definitions mean the estimates of businesses in these publications are not directly comparable. The ABS is working to ensure greater integration of business demographics information in the future.
29 The definition of small business in Experimental Estimates, Regional Small Business Statistics - 1995-96 to 2000-01, Australia (cat. no. 5675.0) is based on a combination of income and expenses. Businesses with total income or expenses between $10,000 and $5m are classified as a small business. Data in this publication are sourced from the ATO business income tax file, which includes all businesses (legal entities) which have traded at any point during the year. The statistical unit is the legal entity.
30 In Small Business in Australia, a small business is defined as one with fewer than 20 employees. Counts of small businesses in this publication are sourced from a combination of ABS household survey data and Survey of Employment and Earnings data, a collection which is based on the ABS Business Register. The ABS monthly labour force survey, which is household-based, is used to produce estimates of the number of non-employing businesses. These are based on estimates of own account workers (i.e. persons working in their own business without employees) from the survey. The ABS Business Register includes employing businesses registered with the Australian Taxation Office at a point in time. The statistical unit is the management unit, which may include more than one legal entity.
31 Australian Industry and Experimental Estimates, Australian Industry, A State Perspective provide counts of businesses by industry at national and state level. Estimates of the number of small businesses are not separately identified in these publications. Data in these publications are sourced from a combination of the ATO business income tax file and the ABS Economic Activity Survey (EAS), a survey based on management units on the ABS Business Register.
32 For more information, please refer to the Explanatory Notes in each publication.
The definition of small business
The nature of the ATO data does not allow multi-location businesses to be identified and disaggregated. To enable regional estimates to be produced for a subset of the economy, the ABS created a small business definition designed to capture businesses which operate from only one location. A key assumption is that these small businesses are single location, or all locations are within the one region.
For the purposes of this publication and the experimental estimates provided within it, the definition of small business refers to those businesses whose total income or expenses were between $10,000 and $5m in the financial year.
Revisions to the data
Two revisions to previously published data have been made. The first revision was to the 1999–2000 companies file due to incorrect postcode information. The second occurred as part of the ongoing process of improving the overall accuracy and quality of the statistics. A slight change in the imputation program was applied to the records for the years 1995–96 to 1999–2000. The overall size of these changes at the Australian level is less than 2%, however, the impact on individual regions or industries can be more significant. The data on the ABS web site have been revised.
Limitations to the data
The number of businesses operated by individuals and partnerships or trusts decreased in 2000-01. This decrease is against the trend of economic growth and is contrary to expectations. It may reflect a different focus from the ATO during 2000-01 with the introduction of The New Tax System and the implementation of the Goods and Services Tax. A lower number of business tax submissions may have been received by the due date and as a result this may have impacted on the number of business returns on the 2000-01 file. Users are advised that this movement should be interpreted with care.
Prior to 2000-01, changes at the Australian level in wage and salary expenses and total income moved in the same direction. In 2000-01, total income for small business fell while wage and salary expenses increased. This may have resulted from changes in taxation law affecting the engagement of contractors. Those contractors who earned more than 80% of their total income from the business were effectively treated as wage and salary earners.
Part of the validation process adopted by the ABS in preparing economic statistics involves the comparison of results across similar statistical series. Comparisons have shown that small business activity is consistent with total business activity when the small businesses are a large part of the total industry such as Agriculture, Construction, Accommodation, cafes and restaurants, and Personal and other services. This level of consistency is not as apparent in industries where the small businesses are a lesser proportion of the overall industry. Industries where there was notable variability included Mining, Finance and insurance, and Cultural and recreational services.
The data provide information on the economic activity of small business at a regional level, they do not provide a complete measure of economic activity in a region. The data exclude businesses not within the scope of the small business definition, tax-exempt businesses and some government activity. The statistics in this publication cover 76% of all businesses, but only 24% of business income.
Despite these limitations the data are valuable for several reasons. They offer a viable regional time series and the health of large business is often reflected in the health of small business. Further, the success or failure of small business is generally a good indicator of the prevailing economic conditions in a particular region.
The estimates in this publication are considered experimental and should be used with caution. Some of the assumptions that have been relied upon in the production of these estimates cannot be directly tested. Users are advised to review the assumptions and methodology before deciding on fitness for purpose. Differences between data presented in this publication and other ABS publications may be due to differences in scope, reference period, statistical unit and the definition of data items
Average annual growth
The average annual growth is calculated as a percentage using the formula below where Po is the figure at the start of the period, Pn is the figure at the end of the period and n is the length of the period between Pn and Po in years.
Cost of sales
Cost price of items sold.
Small businesses other than non-employers
Small businesses with zero wage and salary expenses and superannuation expenses less than or equal to $27,000 and both total income and total expenses less than or equal to $2m.
Non-profit institutions serving households
Non-profit institutions serving households are legal or social entities created for the purpose of producing goods or services whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them.
Businesses with total income or expenses of $10,000 or more, up to a limit of $5m, in the financial year.
The statistical divisions are designed to be relatively homogeneous regions characterised by identifiable social and economic units within the region, under the unifying influence of one or more major towns or cities.
Businesses other than small businesses.
Total business income tax records
ATO income taxation records for companies, partnerships, trusts and individuals declaring business income.
The total expenses of a business, excluding extraordinary items.
The total income of a business, excluding extraordinary items.
STANDARD TABLES AVAILABLE FOR PURCHASE
Table 1: Number and total income for employing and non-employing small businesses by statistical division, 1995-96 to 2000-01.
Table 3: Number of small businesses, total income, total expenses and profit by industry division by statistical division, 1995-96 to 2000-01.
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