ATO benchmarks for air conditioning

This ATO group covers businesses that install, repair and maintain heating, cooling, ventilation and refrigeration systems. Some also fit ductwork or build cool rooms and freezers. Of the ATO's ratios, total expenses measured against turnover is the key range for heating and cooling businesses, the one it finds the most accurate guide to their turnover.

Each business is placed in a group by its main activity. Before drawing the ranges, the ATO sets aside businesses below its minimum turnover or above its upper limit, those listing more than one activity and those still in their first year of trading, then strips out statistical outliers that differ sharply from the rest.

Turnover in these ratios means income from installs, servicing and repairs, excluding GST. Total expenses is the business's costs less payments to associated persons, for example a relative on wages. When the ATO works out cost of sales, it takes salary and wages out.

On an air conditioning job, split systems, ducted units, copper pipe, brackets, refrigerant and other parts fitted for the customer are cost of sales, and they count in total expenses as well. Wages for technicians and apprentices, van fuel and servicing, tool repairs, insurance and workshop rent belong to total expenses only, and subcontracted electrical work counts in total expenses too, so a business installing many new systems carries a different mix from one doing mostly maintenance.

The tables here show total expenses because that is the trade's key range. The ATO's page also lists a cost of sales ratio for air conditioning among its other benchmarks. Those ranges can be published when a smaller share of the industry reports the expense than a key ratio needs, and the ATO presents them only as a guide where they apply.

Each range marks the band of businesses clustered around the industry's mean result in that turnover range, so its edges are neither a floor to reach nor a ceiling to stay under. The ATO rounds every edge to a whole number and draws the turnover ranges for each industry on its own, after studying how that industry's results spread.

On this page the expense share climbs at each step up in turnover in both years, and the band tightens as turnover grows, so the businesses inside each higher band sit closer together. The lowest range is identical in both years. In the middle range both edges are lower in 2023-24, the upper one by more, so that band narrowed slightly. In the top range both edges are lower as well, the lower one by more, so that band widened slightly.

A result above the range means costs are high against income. In this trade that could be suppliers charging more for units and parts than rival installers pay, technicians kept on through quiet periods, installs priced at a thinner mark-up, a system fitted at the owner's own home but counted as business stock, parts damaged or wasted on jobs, or finished work that was not invoiced. Cash from a job spent on parts still counts as a sale.

A result below the range can come from costs missing from the books, such as parts paid for in cash or cash wages, from a higher mark-up, or from a leaner business with less waste. Bookkeeping checks that rule out a recording cause first:

• Wholesaler statements are checked line by line against the bills entered for the year.
• Job sheets match the invoices raised, including small service calls.
• Customer payments, cash included, match the deposits in the bank.
• Units, pipe and refrigerant still on hand at year end are counted.

Take a full financial year's total expenses off the profit and loss report, leave out payments to associates, divide by turnover and set the result beside the band for that turnover.

A part year may catch only the busiest or the quietest months, and a first year reads differently because the ATO leaves businesses in their first year out of its population. A year hit by an unusual expense, such as major repairs to a van, can also sit apart from the band. A business that also sells appliances over the counter or takes on general electrical work may be reporting a mix of activities, and the ATO excludes those businesses too.