Virtical pub group’s alleged tax scam bill could top $50m
Collapsed hospitality empire Virtical owes at least $50 million for fake GST refunds in what could be one of the most brazen alleged tax scams in corporate history, involving hundreds of millions in claimed developments to iconic pubs and hotels that the tax office found never happened.
Tax audits and administrator reports for nine Virtical companies and seen by The Australian Financial Review reveal the Australian Taxation Office has fined the group more than $27 million for intentionally making false GST refund claims and wants to claw back millions more in credits paid.
Former Virtical director and twice bankrupt John Palasty. Bethany Rae
The companies owned Sydney CBD pub the Republic Hotel, Melbourne’s The Adelphi and had signed a $61 million deal to buy the Kinselas and Courthouse pubs in Sydney’s Taylor Square and $40 million for the Metropolitan.
Many of the refunds were based on claimed construction work on pubs that Virtical had not settled on at the time and in some cases never ended up buying, including Kinselas and the Courthouse, audits reveal.
The $50 million in ATO fines and repayment claims cover just half of Virtical’s 20 companies, which sources say have claimed more than $100 million in GST refunds and are also under ATO investigation.
“The companies [under administration] and other companies in the Virtical Group generally are subject to a broader investigation by the ATO involving tens of millions of dollars of invalidly claimed GST credits,” says a creditor report for the Republic Hotel by BRI Ferrier.
The administrator report confirmed Financial Review reporting that Virtical had not paid superannuation to some hotel staff for the whole year.
Virtical burst onto the Sydney and Melbourne hospitality scene last year after spending more than $125 million on pubs in just four months.
But its property empire collapsed last month as non-bank lender Bond Finance put key venues into administration in pursuit of $91 million in overdue loans.
Administrator and ATO documents obtained by the Financial Review reveal a substantial part of the group’s capital was made up of false GST refunds.
Companies claim refunds for GST paid on business expenses if the expenses surpass their income for that period, although receipts only have to be provided on audit.
In the case of the Republic, the ATO found claims totalling $10 million in GST refunds in August and September last year – $7.2 million of which the ATO paid – were false and based on non-existent acquisitions, BRI’s creditor report says.
The ATO fined the companies $7.6 million for “false and misleading statements” and says it is owed $15 million, the report says.
The amounts involved also demonstrate this is not simply a mistake or carelessness, it was intentional.
— Audit report into one Virtical company GST claim
The tax office also claimed $15.1 million from Eden Australasia and $1.7 million from Risby Cove Tas, which owns the Adelphi, creditor minutes say.
ATO audits of five other Virtical companies that the Financial Review has seen make scathing findings against former directors Mark Toma and John Palasty.
The ATO fined one company, Nerang Qld Pty Ltd, more than $10 million for claiming $13 million in GST refunds two months before it settled on a $21 million vacant block of land on the Gold Coast.
Brochure instead of a $147 million invoice
Mr Palasty boasted the project would be a $1 billion apartment tower, and the company relied on $147 million in construction invoices from Top Class Constructions, a company run by Mr Toma, to claim its GST credit.
Asked for evidence of the works, the company provided a “very general brochure” of a residential development on the land, the audit said.
“In fact no payments have ever been made to Top Class Construction NSW for any development works,” the audit said, after an analysis of its account revealed it had “nil balance”.
“The amounts involved also demonstrate this is not simply a mistake or carelessness, it was intentional.”
Mr Palasty, who the ATO said was director when the claims were lodged, would have “full access and control of [company] bank accounts” and would have been “fully aware” the $147 million invoice had not been met, the audit found.
“Mark Toma was fully aware the invoice were fictitious and John Palasty was the person who authorised those fictitious ITC [input tax credit] claim.”
Similar ATO findings of deliberately false claims were made against five other companies, including those set up to develop Kinselas, the Courthouse, a closed school in Eden, the Adelphi and vacant land in Tasmania. For all six the ATO said Mr Palasty was director at the time of lodgement.
In the case of the Courthouse, the company claimed it had spent $35 million on redevelopments, including a $1 million redesign of the bar and trees for “outside gardens”, despite never settling the purchase of the property.
Asked for proof, the company provided the ATO a development proposal for a completely different pub group, Redcape Hotel, the audit said.
At Kinselas, which Virtical also did not settle on, the relevant company claimed $38 million in development costs. The ATO found the company had not even opened a bank account in its name.
“The fact you have not provided information such as the trust deed or other associated documents shows that you knew that your creation and registration was for the sole purpose of claiming GST credits that you were not entitled to,” the audit said.
For the Adelphi Hotel, $20 million in alleged development costs were based on “already submitted substantial development plans” yet the ATO found no planning permits had been lodged.
Mr Toma, who quit Virtical as managing director late last year, according to backdated ASIC filings, did not respond to requests for comment.
Virtical’s John Palasty (left) with then managing director Mark Toma (right) unveiling the Australasia Hotel in Eden in 2022.
The former building materials salesman made $45 million from his sale of Virtical shares, according to the website for his new finance business, a claim since scrubbed from the site.
He now lives in a $3.9 million 2.5 acre property in Sydney’s west that was purchased in 2021 with spa, sauna, gymnasium and a tennis court.
Mr Palasty, who worked as Virtical’s group development director, became sole director of the audited Virtical companies in September or October 2023, according to ASIC filings lodged in November.
However, he claimed in a statement his control of the Republic Hotel companies were “limited to administrative and managerial tasks” until November 28 and denied authorising the GST refund claims.
“Mr Palasty did not get access to the bank accounts of the companies until January 2024,” his lawyers said in a statement.
Four months after the ATO started inquiring into the GST claims, he withdrew the claims “after reviewing its financials”.
Mr Palasty has repeatedly denied Virtical is under audit or investigation, including when asked about companies named in the various audit and creditor reports.
When one completed audit was reported last month, Mr Palasty said he meant Virtical was not under an ongoing investigation.
In response to questions about the latest documents, the lawyers statement said that “as previously stated by Mr Palasty, Virtical Pty Ltd has not been subjected to a GST audit”.
Twice-bankrupt Mr Palasty quit as director of the Virtical companies in September and was replaced by a 27-year-old who has no assets in his name and lives in a rural town in central NSW that has a population of 700 people.
