Buyer of iconic Sydney pubs under investigation over $100m GST refunds
David Marin-Guzman, Larry Schlesinger and Max Mason
Sep 11, 2024
A
high-flying pubs and hotels group is under investigation by the Australian
Taxation Office over $100 million in GST refunds after a company linked to the
group’s former managing director was fined for its own dodgy claims.
Property developer Virtical exploded
onto the Sydney and Melbourne hospitality scene last year after spending more
than $125 million on iconic pubs in just four months. The company pitched
itself as a burgeoning hospitality empire based around a strategy of snapping
up trophy venues and revitalising them with multi-million dollar renovations.
Virtical owner John Palasty at his
home in East Hills in Sydney’s west. Dion
Georgopoulos
Virtical paid $40 million for
Sydney’s Republic Hotel on Pitt St and $25 million for Melbourne’s Adelphi
Hotel on Flinders Lane and agreed to pay $61 million for a pair of historic
pubs on Oxford Street’s Taylor Square, the Courthouse Hotel and Kinselas.
But in recent months Virtical has
hit severe turbulence. It has been in a race to offload properties, obtain
major refinancing and even pull out of the Taylor Square deal, sparking a
bitter legal fight with the vendor, MA Financial.
The Australian Financial Review can
reveal that since December 2023, the ATO has been investigating more than a
dozen Virtical group companies over their tax returns, according to sources not
authorised to speak publicly about the investigation.
The Financial
Review does not suggest that the Virtical group’s GST refunds
are illegitimate. However, the scope of the investigation is so large that, if
the ATO investigation concludes that the refunds have no basis, it could be one
of the biggest cases of its kind in Australian corporate history.
There are two key players behind
Virtical. Mark Toma, a 50-year-old ex-building materials salesman, established
the firm, then known as Core Asset Development, in 2021. The returns were made
under his tenure.
John Palasty and Mark Toma at the
unveiling of the Hotel Australasia in Eden on December 17, 2022, one of the
early purchases of Core Asset Development (now known as Virtical).
Then there is John Palasty, 69, who
was twice bankrupt and was found a decade earlier to have defrauded Westpac of
$750,000. He took over from Mr Toma as director in November last year after
acting as the group’s development manager and senior advisor.
The ATO started the audit after it
found a company known as AM NSW Pty Ltd, which was run by Mr Toma but not
ostensibly linked to Virtical, falsely claimed hundreds of thousands of dollars
in GST refunds. The company was the registered owner of 14 cars, including two
Porsches and five BMWs.
When companies purchase goods and
services needed to run their business, they can claim refunds for the GST paid
if their expenses surpass their income in the period. However, they are only
required to provide receipts in the event of an audit.
The developer of an apartment
building, for example, could claim 10 per cent of the costs of building
materials or formwork services during the construction period. The company
would still be liable to pay GST at the point of sale of the finished building.
Companies set up for Virtical’s
property purchases, including in Queensland, NSW and Tasmania, have claimed
more than $100 million in GST refunds, sources familiar with the matter said.
No evidence of business activity
In the case of AM NSW, the business
lodged a $380,000 refund claim for the September 2023 quarter. After an audit,
however, the ATO could find no evidence of how the company funded the $6.2
million in purchases it said it had made.
AM NSW’s bank statements showed no
evidence of business activity and since its incorporation it had spent $10.8
million more than it had earned in revenue, according to the ATO. The firm went
into voluntary liquidation at the end of January after the ATO issued a
$284,555 fine against it over its refund claim.
Mr Toma lodged his resignation from
AM NSW the same month but backdated his exit by four years. Despite his
supposed resignation in 2019, Mr Toma continued to be a signatory on AM NSW’s
bank account when the company claimed a total of $640,000 in GST refunds over
six months last year, according to O’Brien Palmer liquidator Daniel Frisken.
One $262,000 GST refund for the June
2023 quarter was deposited into Mr Toma’s company DGA Global. DGA then
transferred the money to his new venture Bond Global Capital, according to the
liquidator’s report lodged with the Australian Securities and Investments
Commission in April. Mr Toma’s financial capacity to satisfy any claims against
him was “inconclusive at this stage”, the liquidator Mr Frisken said in the
report.
That is despite Mr Toma apparently
netting $45 million from the sale of his Virtical shares “further solidifying
his reputation as a financial luminary”, according to the website of Bond
Global Capital.
“I’ve got no comment for you,” he
said in response to the Financial Review’s questions about the ATO
investigation and his involvement with AM NSW.
ATO combatting fraud
An ATO spokesman said it “cannot
comment on the tax affairs of any individual or entity due to our obligations
of confidentiality and privacy under the law”.
However, he said the agency – still
reeling from the $1.7 billion GST scam
promoted on TikTok and claimed by 56,000 people – was
committed to combating GST fraud and “ensuring those involved face the
consequences”.
“We are constantly evolving our
sophisticated data analytics that help identify and stop GST fraud as it is
attempted and support that approach with broader post-issue compliance
strategies to ensure GST claims are true and correct,” he said.
Mr Palasty’s lawyers said, “our
client advises that, to their knowledge, Virtical group is not under ATO
audit”.
“Our client has never been
associated or ever been part of AM NSW Pty Ltd and has no knowledge of that
company’s affairs,” Mr Palasty’s lawyers said.
“Our client denies any partnership
or association with Mark Toma and is not his representative.”
Mr Palasty was not the head of
Virtical during the period in which the GST refund claims under investigation
were made. However, he has a long history of questionable deals in previous
roles that predate his tenure at Virtical.
Westpac saga
He stole $750,000 from Westpac in
2011, the Supreme Court of NSW found, which the Financial Review can
reveal for the first time. He did this by writing a cheque for that amount from
an account at another bank that had closed five years earlier, along with
falsified proof that the funds were available.
Mr Palasty used the bulk of the
money to buy a house in Smithfield, in Sydney’s western suburbs, the following
day. He quickly mortgaged the property to secure a loan advance of more than
$300,000 from another financier. Mr Palasty generally denied any wrongdoing but
failed to submit any sworn evidence.
Justice John Bryson found Mr
Palasty’s statements to the bank were “consciously false”.
They were “part of a connected array
of intentionally fraudulent conduct in which the defendant was engaged with a
view to obtaining title to the Smithfield house and other money by whatever
means, honest or dishonest, were necessary, and turning about to face the
consequences later”.
Mr Palasty also previously ran a
chain of property companies that bought up several hotels and the luxurious
Double Island in Far North Queensland before going into administration and
liquidation in 2004 owing $54 million to ANZ bank.
He was declared bankrupt in 2012
after he was pursued by a financier and was discharged in 2015. He was declared
bankrupt again four years later and only discharged in February last year.
Three months later a company in Mr
Palasty’s wife’s name bought a four-bedroom luxury house with a swimming pool
across 1000 square metres in Sydney’s East Hills for $2.25 million.
In late 2022, Mr Palasty pleaded
guilty in the District Court to criminal charges of contracting to do
residential building work without a licence or insurance, knowingly
misrepresenting that an individual was licensed, demanding payment for building
without insurance and receiving a deposit that exceeded the maximum.
Virtical is in the process of
selling the Adelphi Hotel in Melbourne after buying it only a year ago.
In the past month, Virtical under Mr
Palasty has put the Adelphi Hotel up for sale, sold $18 million worth of
residential land lots in Launceston while dumping plans to build a $1.2 billion
apartment project on the Gold Coast and a $150 million apartment tower in
Newcastle, NSW.
Industry players believed the drastic efforts to raise cash
showed Virtical had extended too far, while the company claimed
it was merely re-focusing on its Sydney assets. Whatever the truth, the probe
by the ATO may derail the group’s plans.
In a media release dated August 22 –
a day before Mr Toma failed to personally settle the Courthouse and Kinselas
purchases as per court orders – Mr
Palasty said Virtical was selling properties to concentrate on refurbishing the
heritage-listed, but boarded up, Metropolitan Hotel in the CBD and to create “a
war chest to acquire more property assets in the future”.
