iscoverA tax agent has called the fairness of the ATO’s penalty regime into question after the Tax Office denied a $9,000 penalty remission accrued by a sole trading client’s dormant company.
‘Punishment doesn’t fit the crime’: ATO upholds $9k penalty to dormant business
07 November 2025
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10 minute read
When a client came to Kevin San with a $9,000 failure to lodge (FTL) penalty for a business which had never traded, he thought it would be a ‘slam dunk’ case for a penalty remission with the ATO.
San, a tax agent and director of Kevin San & Associates, told Accountants Daily that the client had incorporated their business in 2014, but didn’t trade until 2025. In 2022, the client’s former accountant registered the company for GST and BAS, but failed to communicate the taxpayer’s obligation to lodge quarterly BAS.
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From 2022 to 2025, the dormant company racked up $9,000 in FTL penalties despite having no real tax debts, San said.
“For all the BAS in between, the company was actually dormant. There were no trading activities. There was no BAS to pay, literally zero tax debt. And for seven of those outstanding BAS, there's $9,000 of fines,’ he said.
When the ATO knocked back his remission request for the $9,000 penalty, San said he was shocked. He thought the case would be an ‘absolute slam dunk,’ given that the client hadn’t been properly informed of their obligations by their former accountant, and there was no outstanding tax to pay.
“The previous accountant never told the client, so it's not the client's fault. They placed reliance on a professional who let them down. And two, there wasn't any tax to pay anyway. So the ATO is not out of pocket,” San said.
“Those two things, when you put them together, I would say give a 100 per cent chance you will get penalties remitted. However, in this case, it was knocked back.”
He noted that the $9,000 penalty was “a lot of money” for the client, being a sole trader who had recently gone through a divorce. Given the lack of options for recourse, he slammed the ATO’s penalty regime for being unfair towards sole traders with minimal tax liabilities.
“The punishment at the moment doesn't fit the crime. A $1,500 fine for a late BAS is the same whether you’re a small trader with no tax to pay or a big business with a $50,000 tax bill. Why is it fair that those two people have the same penalty?”
“The thing that brought fairness into the system was that you could always call the ATO, explain the situation, and for [a small business] that might not have any tax to pay at all, they would reverse the penalties. That made the outcome fair.”
San said that he did not plan to follow up on his client’s $9,000 tax bill with the ATO, as he lacked confidence that the Tax Office could resolve the situation.
“I've been knocked back so many times when I've tried to follow it up, I'm just not even bothering anymore,” he said.
“And to be honest, I think you shouldn't assume that accountants have this bottomless amount of time to spend on the phone with the ATO simply because, really, it's unfair that we charge the client for our time to do this because these requests for remission should not have been refused in the first place.”
He added that the ATO’s current tax agent phone staff appeared to lack expertise and had been largely unhelpful in resolving conflicts and queries.
“Very often nowadays, you end up with queries where the [ATO phone agent] goes, ‘I'm not really sure what I'm supposed to do here. I agree with you, it's wrong, but I'm not sure how to resolve the problem,’” he said.
“I get a feeling that a lot of the staff that you deal with are actually different now from the ones that you dealt with a few years ago. Their attitudes are completely different, their experience is definitely completely different.”
San recalled a separate case in which the ATO issued an amended assessment that incorrectly duplicated the Medicare line items in a client’s tax return. When San’s objection was refused, he called the Tax Office to explain the situation, but failed to get assistance.
‘“[The phone agent said], well, you're outside the 60 day objection period, so too bad. I said, but the ATO amended a correct return into an incorrect one. And he said that doesn't matter, it's outside the 60 days,” San said.
This has lined up with findings made by Tax Ombudsman Ruth Owen, who identified a significant amount of dissatisfaction amongst tax agents’ experiences with the ATO, including the agent phone line.
“I have been overwhelmed by the strong feedback from tax agents in this review. Agents are reporting an increasingly poor experience with the ATO’s agent phone line over the last two years, citing inconsistent advice and a lack of suitably skilled staff. This is contributing to a general feeling of not being valued by the ATO,” she said.
San said that the ATO’s approach had left him feeling that he had nowhere to go to help his client resolve the $9,000 tax debt.
“This is a client that's worth helping. They've just resolved a very difficult personal situation with divorce and they moved into a new house. They're ready to move on with their life, but they've got this thing over their head and I can't make it go away.”
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