Failure to Lodge Penalties: ATO Upholds $9k Fine on Dormant Company

A recent case involving a $9,000 Failure to Lodge penalty issued to a dormant company has reignited concerns around the Australian Taxation Office’s (ATO) penalty remission process, particularly where there has been no actual tax liability.

The matter involved a sole director company, incorporated in 2014, but inactive for several years. However, in 2022, the entity was registered for GST, automatically imposing quarterly BAS lodgment obligations, despite the business never having commenced operations. Unaware of these obligations and with no BAS lodged from 2022 to 2025, the company incurred $9,000 in Failure to Lodge penalties.

This occurred even though the company never traded, not derived any income, nor incurred any GST liabilities. In short, the liability arose because the director was unaware of the GST requirements and had relied on incorrect advice from their accountant.

ATO Refusal to Remit Penalties Raises Fairness Concerns

A request to the ATO to remit the penalties in full was denied, raising questions about how discretion is applied in cases involving honest oversight and no financial impact to the tax system.

For small and micro-businesses, especially those with dormant or pre-trading structures, this case highlights the significant risks of administrative penalties arising from compliance issues, rather than deliberate non-compliance or evasion.

The ATO’s position appears to rest on the strict enforcement of lodgement obligations, regardless of trading status or tax payable. Yet the fairness of this approach, especially in instances where no tax is due and the business owner has relied on professional advice, remains under scrutiny.

Disproportionate Impact on Small Businesses

The uniform penalty system currently applies the same Failure to Lodge penalties to all taxpayers, regardless of their size or circumstances. In practice, this means a dormant company or micro-business with no turnover could face the same penalties as an entity with significant revenue.

This one-size-fits-all approach may create undue hardship for smaller entities, especially those experiencing changes in accounting support, undergoing business restructuring, or dealing with personal hardship, such as divorce or financial stress.

A Growing Frustration Among Tax Agents

The case aligns with broader concerns raised by tax professionals and the Inspector-General of Taxation and Taxation Ombudsman (IGTO), who recently highlighted declining satisfaction with the ATO’s agent support services. Many tax agents have reported inconsistent advice, a lack of specialist knowledge, and limited avenues for escalation when dealing with complex or unfair outcomes.

Key Takeaways for Business Owners

Dormant Companies Still Have Compliance Obligations

Even if a business hasn’t begun trading, registration for GST creates lodgement obligations.

These must be met to avoid penalties and, in some instances, prosecution, even if no payments are required.

Professional Advice Is Critical & Must Be up to Date

Business owners should ensure their tax advisers are proactive in communicating all compliance requirements, particularly when new registrations are made or circumstances change.

Penalty Remission Is Not Guaranteed

While the ATO has discretionary powers to remit penalties, this case shows that remission is not automatic, even where there is no tax payable and the taxpayer acted in good faith.

Early Action Is Key

If you receive an ATO notice, particularly involving penalties or compliance breaches, early intervention can improve your chances of securing a favourable outcome.

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Related Blog – Final Notice to Lodge ATO