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EXPLANATORY NOTES


INTRODUCTION

1 This publication presents counts of businesses based on snapshots of actively trading businesses as at June 2003, 2004, 2005, 2006 and 2007 from the Australian Bureau of Statistics Business Register. This publication contains counts and rates of business entries and exits from the Australian economy as well as counts and rates pertaining to the survival of businesses.

2 This publication harmonises two previous publications; Australian Bureau of Statistics Business Register, Counts of Businesses (cat. no. 8161.0.55.001) and Experimental Estimates, Entries and Exits of Business Entities, Australia (cat. no. 8160.0.55.001). Those releases used different data sources and definitions.

3 The scope of Counts of Australian Businesses, including Entries and Exits (cat. no. 8165.0) is significantly different compared with the scope of all other previous ABS business counts releases. This release only includes businesses which actively traded in goods or services during the reference period in question.

DATA SOURCE

4 Most businesses in Australia need to obtain an Australian Business Number (ABN). These businesses are then included on the whole-of-government register of businesses, the Australian Business Register (ABR), which is maintained by the Australian Taxation Office (ATO). Information about the ABR can be obtained from the ATO web site <www.ato.gov.au/business>. The ABS uses information from the ABR to populate its internal register of businesses, the Australian Bureau of Statistics Business Register (ABSBR), which is used as a source for business survey frames and business counts.

5 Prior to July 1 2007, businesses with turnover of at least $50,000 per annum ($100,000 in the case of non-profit organisations) were required to register for an ABN and remit GST. Businesses with turnover under $50,000 were able to voluntarily register and these voluntarily-registered businesses are included in the counts in this release.

6 It should be noted that from July 1 2007, the thresholds to register for an ABN and remit GST were revised to $75,000 per annum for businesses (and $150,000 in the case of non-profit organisations). While this change does not impact on this release it will be applied for future releases. For further information, please refer to the Appendix.

STATISTICAL UNIT

7 In mid 2002, the ABS commenced sourcing its register information from the ABR and at that time changed its business register to a two population model. The two populations comprise what is called the Australian Tax Office maintained population (ATOMP) and the Australian Bureau of Statistics maintained population (ABSMP). The main distinction between businesses in the two populations relates to the complexity of the business structure and the degree of intervention required to reflect the business structure for statistical purposes.

8 The vast majority of businesses included on the ABS Business Register are in the ATOMP. Most of these businesses have simple structures and the unit registered for an ABN satisfies ABS statistical requirements. For these businesses, the ABS statistical units structure directly aligns with the ABN unit: one ABN equates to one business.

9 For a relatively small number of businesses, the ABN unit is not suitable for ABS economic statistics purposes and the ABS maintains its own units structure through direct contact with businesses. These businesses constitute the ABSMP. This population consists typically of large, complex and diverse groups of businesses. In the ABSMP, a type of activity unit (TAU) equates to one business.

10 The TAU is comprised of one or more business entities, sub-entities or branches of a business entity within an enterprise group that can report production and employment data for similar economic activities. When a minimum set of data items are available, a TAU is created which covers all the operations within an industry subdivision. Where a business cannot supply adequate information for each industry, a TAU is formed which contains activity in more than one industry subdivision. These TAUs are classified according to the industry subdivision of the main activity. TAUs may have operations in one or more states/territories.

11 The statistical unit referred to as a "business" thus consists of ABNs from the ATOMP and TAUs from the ABSMP.

INTERPRETATION OF UNITS

12 It is possible for a business entity to register for a single ABN regardless of the number of commercial activities it undertakes. Alternatively, multiple commercial activities of a single business enterprise may be registered for separate ABNs, depending on the legal structure adopted by the enterprise. Hence where commercial activities are carried out by a number of different, but related entities, each entity may register for a separate ABN. Therefore, caution should be used in equating the number of businesses, represented by ABNs (and TAUs) in this publication, with number of business operations.

SCOPE

13 Counts of businesses produced from the ABSBR comprise actively trading businesses in the Australian economy. Actively trading businesses are:

• TAUs from the ABSMP (where activity is monitored by direct contact by ABS); and
• ABNs from the ATOMP which are actively remitting in respect of a Goods and Services Tax Instalments Payer (GSTP) tax role. Limiting the scope to only businesses with a GSTP role means that only entities which are actively trading in goods or services are included.

15 Excluded from these counts are entities which are not considered to be actively trading in the market sector and as such are not considered to be businesses. These entities are classified to the following categories:

• Standard Institutional Sector Classification of Australia (SISCA):
  • 2100 Central Bank;
  • 3000 General Government;
  • 5000 Non-Profit Institutions Serving Households; and
  • 6000 Rest of the World.
• Type of Legal Organisation (TOLO):
  • 12 Charitable Institution;
  • 15 Social and Sporting Clubs;
  • 16 Trade Unions and Other Associations;
  • 20 Other Unincorporated Entity;
  • 41 Diplomatic or Trade Missions; and
  • 42 Other Foreign Government.
• ANZSIC Subdivision:
  • 96 Other Services; and
  • 97 Private Households Employing Staff.

17 Businesses which have not submitted a Business Activity Statement (BAS) and/or have reported zero dollar amounts over five consecutive quarters are treated as "long term non-remitters" (LTNRs). They are not actively remitting GST and, as such, they are considered not to be actively trading and are excluded from counts.

COVERAGE

18 There are businesses which have not registered for an ABN, either because they do not have any obligations under the Goods and Services Taxation (GST) legislation or are under the threshold for registration and have chosen not to register. However, these businesses have not been identified and quantified and so are not included in counts presented in this publication.

COMPARABILITY WITH FRAMES FOR ABS BUSINESS SURVEYS

19 The basis for business counts in this release is broadly consistent with that used for frames in most ABS business surveys. There are two exceptions to this:

• The scope with regard to industry, sector or type of legal organisation can vary according to the requirements of the survey. In some cases, classifications excluded from these business counts are included in a survey frame in order to more comprehensively measure a particular part of the economy. Other survey frames may only include a subset of these classifications. Most frames currently include employing businesses only.
• Most survey frames include businesses with a tax role to withhold income tax from their employees (ITW role) but without a GST tax role. There are approximately 55,000 such businesses. Investigations indicate that units with an ITW role but no GST role are likely to be part of a complex business structure. Such businesses are excluded from these counts as they are not considered to be actively trading in goods and services. For business surveys designed to, amongst other things, provide estimates of wages and salaries paid (irrespective of whether the business is actively trading or not), it is important that these businesses are included on frames.

BUSINESS LIFE CYCLE EVENTS

21 This release contains not only snapshots of counts of active businesses at regular points in time but also provides a disaggregation of these counts to enable the identification of the flows of businesses into and out of the economy and a measure of the length of time that businesses continue to survive.

22 Business entry and exit counts are restricted to new or ceasing businesses. The counts do not include the establishment of new locations associated with an existing business.

23 Over the course of a business' life cycle it is possible that its characteristics such as industry or business legal structure may change. However, investigations show that the majority of such changes to characteristics on the ABSBR are the result of previous errors being corrected rather than real world change. For reasons of data comparability and interpretation (including ensuring that closing stock equals opening stock for the first day of the next financial year), changes over time to business characteristics are not reflected in this publication.

24 Counts of business entries, exits and stock for all referenced periods in this publication reflect the characteristics of the business as at June 2007. In the case of businesses which exited prior to June 2007 the latest available data is used. As is illustrated below, this is achieved by ensuring that the classifications attributed to each business are held constant at their June 2007 (or latest available) value.

Entries

26 A business entry event is the registration of a new business for an ABN and the allocation of a GST role, or the allocation of a GST role to an existing ABN which previously did not have this role.

27 Included will be businesses which:

• have previously exited and subsequently recommenced activity under their original ABN and GST role; and
• had ceased remitting BAS for at least five successive quarters (LTNRs) but had recommenced remitting prior to the next reference period. All businesses falling into these groups will be recorded as business entries.

Exits

29 A business exit event is the cancellation of a business's ABN or GST role and/or when a business ceases to remit GST for at least five consecutive quarters in respect of that ABN.

30 Thus, a business exit is defined as a business which was actively trading on the business register at 1 June in the previous year but was not actively trading at 1 June in the reference year.

31 It is important to note that a business exit event does not necessarily equate to a business "failure". There may be a number of other reasons why a business exit event has occurred, including events relating to selling a business (e.g. due to an owner/operator retiring), and events relating to changes in a business's structure (e.g. due to merger or takeover activities), etc. Such activities may also result in one or more business exit events occurring.

Survivals

32 A surviving business is defined as a business which continues to be active on the ABSBR at 1 June and was also previously active. In this release, two types of survivors are recorded:

• Businesses who were on the ABSBR at 1 June 2003. Due to the changed basis of the ABSBR, the ABS has determined that it is not feasible to ascertain the age of these businesses. The survival of these businesses is measured in terms of whether they were still on the ABSBR at 1 June 2004, 2005, 2006 or 2007, respectively.
• Businesses who were entries in 2003-04. That is, they were not actively trading at 1 June 2003 but were on 1 June 2004. The survival of these businesses is measured in terms of whether they were still on the ABSBR at 1 June 2005, 2006 or 2007 respectively.

DATA QUALITY

34 The counts in this publication may be subject to non-sampling error and the cyclical administrative workflows of the ATO may impact on data interpretability.

35 The counts are not subject to sampling error as they represent a complete enumeration of those 'economically active' businesses on the ABSBR.

36 For businesses in the ATOMP, most classificatory data items reflect information provided to the ATO at the time of ABN registration. The exception is Number of Payees, which is updated annually by the ATO, and turnover, which is based on BAS reporting. In the ABSMP, classificatory data items for the most significant businesses are updated annually. Businesses on the next level of significance are updated biennially. Other businesses in the ABSMP are not routinely updated, but may be updated as a result of ABS survey feedback or other maintenance activity.

37 It is possible that a small proportion of businesses identified as "long term non-remitters" and which are excluded from counts, are in fact still actively trading. It is expected that these units will be identified and re-included in counts as entries in subsequent periods when they recommence active remittance of GST.

38 There is also the possibility that in future the inclusion/exclusion status of specific groups of businesses may change in light of improved identification of business activity. Counts are also subject to revision due to review and correction of classificatory information.

LIKELY SOURCES OF ERROR IN THE COUNTS IN THIS RELEASE AND FUTURE DEVELOPMENTS

39 The counts in this release are intended to provide an accurate measure of actively trading businesses. That is, the businesses are all producing or distributing goods or providing services (defined by a GST role) and are active (defined as having remitted GST obligations within the past five quarters).

40 There are, however, three sources of error which mean that these counts are not a perfect measure of the number of actively trading businesses at any point in time.

Businesses with low turnover

41 Prior to July 1 2007, businesses with turnover of at least $50,000 per annum ($100,000 in the case of non-profit organisations) were required to register for an ABN and remit GST. Businesses with turnover under $50,000 were able to voluntarily register and these voluntarily-registered businesses are included in the counts in this release. There are certainly, however, businesses that are actively trading with turnover of less than $50,000 which chose not to register for an ABN or remit GST. The number of businesses in this category is currently unknown to the ABS. The ABS will continue to explore alternative data sources to ascertain whether these businesses can be accurately recorded.

42 It should be noted that from July 1 2007, the thresholds to register for an ABN and remit GST were revised to $75,000 per annum for businesses (and $150,000 in the case of non-profit organisations). While this change does not impact on this release, it will be applied for future releases. However, the ABS believes that these revisions are not expected to impact significantly on the number of businesses which fall under the thresholds but choose to register for an ABN and remit GST.

Businesses which have recently ceased trading

43 An analysis of recent ABS surveys indicates that a proportion of businesses which have remitted GST within the most recent five quarters of the end of the reference period had in fact ceased operation by the end of the reference period. The exclusion of LTNRs from the counts in this release thus excludes the majority of but not all businesses who have ceased trading. It is proposed that investigations be undertaken in order to ascertain whether it is possible to identify these businesses using either existing data sources or alternative data sources.

Businesses which appeared to have ceased trading but are likely to be active

44 Conversely, investigations show that a relatively small proportion (15% on average) of businesses identified as LTNRs at a point in time (and thus excluded from these counts) recommence remitting at a later date. At this stage, it is not clear whether these businesses were not active during the period (in which case their exclusion provides an accurate count) or were actively trading but failing to remit their GST obligations (in which case they were incorrectly excluded). It is proposed that investigations be undertaken into this group of units.

45 The ABS believes that the above sources of error are likely to have a relatively small impact on the accuracy of the business counts contained in this release.

A COMPREHENSIVE COUNT OF ALL ECONOMICALLY ACTIVE ENTITIES

46 Ideally, the ABS would capture all economically active entities in Australia. These would then be split by actively trading businesses and other entities. The inclusion of businesses registered for an ABN and with asset holdings and consequent income flows but which did not trade in goods or services was an attempt, in part, to provide this more comprehensive view.

47 However, it is not possible to accurately capture all such entities at this stage as there are a number of options open to these entities with regard to registration or participation in the tax system. Using existing data sources, only partial coverage of these entities is possible and it is not possible to quantify the extent of this partial coverage.

48 The ABS will continue to investigate whether more comprehensive coverage of these businesses is possible.

49 Until such time, counts of businesses produced by the ABS will be restricted to businesses which are actively trading in goods or services. This will also continue to be the basis of the frames used in ABS business surveys.

BUSINESS SIZE

50 The sizing classifications presented in this release are based on employment and turnover reported by businesses.

51 Employing units are defined as:

• in the ATOMP, businesses with a non-cancelled ITW role and which have remitted to the ATO at least once in the preceding five quarters. Note that this may include a small number of businesses which have ITW roles for purposes other than withholding amounts from wages and salaries, and as such have zero employment;
• in the ABSMP, businesses with greater than zero employees.

• in the ATOMP, businesses report "number of payees", defined as the estimated number of individuals to whom payments are made. This will reflect the total number of persons employed by the business throughout the year rather than an estimate of current employees at a point in time. Payments to people under a voluntary agreement or labour hire arrangement are excluded;
• in the ABSMP, businesses report "employment" defined as the number of persons who work for a public or private employer and receive remuneration in wages or salaries (including working proprietors and working partners), or is paid a retainer fee by his/her employer. Employment excludes non-salaried directors; volunteers; persons paid by commission only; and self employed persons such as consultants and contractors. This data are collected through direct contact with ABSMP businesses and reflects an estimate of current employees at a point in time.

Imputation of turnover values for 2003-04 business exits

54 Turnover has only been properly estimated for businesses who were on the ABSBR from 1 June 2004. As noted in Paragraph 24, the classifications attributed to each business are held constant at their June 2007 value (where available) or, in the event of 2007 values not being available, the latest available values are used.

55 A different approach has therefore been required for businesses who were present at 1 June 2003 but who exited before 1 June 2004. For most of these businesses, auxiliary information such as employment has allowed imputation of sufficient quality for the purposes of these turnover size ranges. For a small number of businesses, no such auxiliary information was available and so these businesses have been classified at random in accordance with the distribution of businesses which were operating at the start of the 2003-04 financial year. As such, comparisons between years of exits by turnover size should be treated with caution.

Redistribution of June 2006-07 business entries

56 The imputation technique described above assigns turnover ranges to businesses missing turnover data. However, as part of preliminary table development work, there was found to be a significant population of 2007 business entries (approximately 50,000 units) for whom no previous annual turnover data was available. To address this concern, these units were redistributed in accordance with the general distribution of the stock count of businesses by turnover size ranges as at June 2006.

MAIN STATE

57 Businesses can operate in more than one State/Territory. For businesses in the ATOMP, Main State is derived from the main business address. For businesses in the ABSMP, Main State is the State or Territory with the highest employment. Therefore, for some businesses in the ABSMP, Main State is not necessarily the State or Territory of the main business address.

INDUSTRY

58 Each ABN unit or TAU on the ABSBR has been classified (by the ATO and the ABS respectively) to a single industry class, irrespective of any diversity of activities undertaken. The industry class allocated is the one which provides the main source of income, which is generally based on a description provided by the business.

STATISTICAL LOCAL AREA

59 The Statistical Local Area (SLA) is a general purpose spatial unit. It is the base spatial unit used to collect and disseminate statistics other than those collected from the Population Censuses. In census years, an SLA consists of one or more whole Collection Districts (CDs). In aggregate, SLAs cover the whole of Australia without gaps or overlaps.

60 SLAs are based on the boundaries of incorporated bodies of local government where these exist. These bodies are the Local Government Councils and the geographical areas which they administer are known as Local Government Areas (LGAs). An LGA is an SLA if it fits entirely within an Statistical Subdivision (SSD) and is broadly similar in size, economic significance and user needs for statistics to other LGAs in Australia.

61 Sub-State level datacubes have been released for the first time using SLA. The SLA datacubes will replace the postcode-based data made available in February 2007. It is expected that future releases of Counts of Australian Businesses, including Entries and Exits will continue to provide sub-State level data using the SLA classification.

62 One of the main advantages of the SLA data over the previously published postcode data is that the SLA categories used in the aforementioned datacubes can be easily used to aggregate data to larger geographical areas, including Statistical Subdivisions, Statistical Divisions, and States/Territories, as part of the ASGC. For more information, users should refer to the Australian Standard Geographical Classification (ASGC) (cat. no. 1216.0).

63 It should be noted that it is not currently possible to account for those businesses which operate out of multiple locations, other than at their main location. This is particularly relevant for larger businesses, which commonly establish outlets in numerous States and regions across Australia. The reason for this is that data pertaining to individual business locations are not currently available from the ABSBR. Users should therefore be aware of this limitation when using counts of businesses included in this publication.

CONFIDENTIALITY

64 The data presented in the various cross-classified datacubes have been confidentialised to ensure no individual business can be identified. The confidentialising process applied maximises the availability of data without introducing any bias to the estimates.

65 The confidentiality process used in this release differs slightly from the process used in the previous release. The new process involves the random rounding of data at the most detailed levels of the various classifications used.

66 The introduction of this new process has resulted in data from the previous release being slightly refined. At the broadest level, the revisions to the data have been minimal. Users however should be aware that at more detailed levels, the new confidentiality process will have greater impact.

67 The new confidentiality process used in this release also means that data presented at these detailed levels will not always be additive. That is, opening stock from the beginning of the financial year, plus entries, minus exits, may not be equal the closing stock for the end of the financial year.

68 It is proposed to review the current confidentiality process in the future to improve the additivity of data presented at detailed (datacube) levels.

COMPARISON WITH OTHER BUSINESS COUNTS DATA

69 Estimates of the number of businesses operating in the Australian economy may be derived from a number of sources within the ABS or from non-ABS sources. They may relate to a point in time, or may be average annual data. These estimates will not always show the same results. Variations occur because of the differing data sources, differing definitions of a business, differing scope and coverage between surveys, as well as variations due to sampling and non-sampling errors.

70 The definition of employing/non-employing in the ABS can also vary according to collection methodology, data sources, and user requirements and uses.

71 Users comparing data from this publication with other ABS data should do so with care, as some other ABS publications may exclude non-employing businesses or particular industries or sectors.

72 Counts of businesses included in this publication are not comparable with those provided in Australian Bureau of Statistics Business Register, Counts of Businesses (cat. no. 8161.0.55.001, 002 and 003) due to differences in the scope of units included. The primary scope difference between this publication and 8161.0.55.001 is that the latter included all businesses with any one or more non-cancelled tax role. These roles included GST, ITW and ITIP. The scope of counts in this publication only includes businesses which are actively remitting GST. Therefore, entities with only an ITIP or ITW tax role, or which have not remitted GST in the previous five quarters are excluded from the counts on the basis that these are not actively trading businesses.

73 Counts of business entries and exits included in this publication are not comparable with those previously released in Experimental Estimates, Entries and Exits of Business Entities (cat. no. 8160.0.55.001). Previous estimates were based on registered ABN units only, not on businesses as defined by the ABS (see Paragraph 7 (Statistical Unit)). Included were all units with any non-cancelled tax role. In addition, (cat. no. 8160.0.55.001) separately identified reactivated business entities. A "reactivation'" was a previously identified exit that had subsequently revived its ABN and tax role(s). These reactivated business entities were not considered business entries but were included in stock estimates. In this publication "reactivated" businesses have been included in entry counts in the period in which their ABN again became active and they recommenced remitting GST.

74 For further details see the Explanatory Notes section of the relevant publications.

ADDITIONAL DATA

75 Further detailed data are available through datacubes which will accompany the release of this publication through (www.abs.gov.au). These datacubes include detailed cross-classified information using industry, geographical and business size dimensions.

ABS DATA AVAILABLE ON REQUEST

76 As well as the statistics included in this and related publications, the ABS may have other relevant data available on request and for a charge. Inquiries should be made to the ABS National Information and Referral Service on 1300 135 070.

77 Information is also available on-line via a selection of industry-specific theme pages. To access these theme pages, go to the ABS web site home page <www.abs.gov.au>, open the Industry link shown under 'Themes' (located in the left-side navigator), then select one of the links shown under 'Industry'.