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''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
-Kurt Vonnegut
The Tax Office claims collapsed hospitality group Virtical accrued $120 million in fake GST refunds to fund its purchase of iconic pubs in Sydney and Melbourne – in what would count as the biggest GST fraud in the country’s history if proven.
Liquidator examinations in the Federal Court on Friday revealed that the Virtical Group owed an extraordinary $203 million to the ATO once $80 million in interest and penalties was included.
Former Virtical director Mark Toma (right) walking out of the Federal Court after his examination on Friday. Michael Quelch
At the hearings, former directors Mark Toma and John Palasty pointed fingers at each other over the tens of millions of dollars of GST claims based on $1.2 billion in construction work that the ATO claimed did not happen.
Virtical burst onto the scene in 2023 as it scooped up iconic pubs and hotels such as Sydney’s Republic and Melbourne’s Adelphi in a $125 million spending blitz over four months.
However, The Australian Financial Reviewrevealed last September the group was under investigation by the ATO over $100 million in GST refunds. It later collapsed as a lender owed $90 million forced its companies into liquidation.
Palasty, a twice bankrupt developer, took over as Virtical director from Toma, an ex-building materials salesman, in November 2023 after acting as the group’s development manager and senior adviser.
Outside the court on Friday, Palastydenied wrongdoing to AFR Weekend and argued GST refunds for work not yet done “doesn’t pass the pub test, but it passes the law”.
The refunds were claimed using invoices from Top Class Constructions, of which Toma was director from 2017 to 2023.
Palasty told the court Toma was the one in charge of the invoices.
“I was responsible to Toma at all occasions to do what he requested,” Palasty said of his role at Virtical before he became the director. “Any invoices created by Top Class would have been created by Toma.”
He blamed the collapse of Virtical on the ATO “failing to properly assess the GST claims” and “Toma being negligent in those companies”.
“The ATO assessed these [GST claims] on newspaper articles and no factual evidence at all, and the company should have protected themselves against the ATO,” he said.
“In my view, the liquidator should not have accepted them as a creditor because they were not a creditor.”
Former Virtical director John Palasty arrives at court for his examination.
He accused the liquidator of treating the ATO audits as “judgments” and argued all he had done was account for “progress draws”, a reference to periodic payments based on construction work completed to date.
He denied lodging the claims. But asked whether he had authorised a claim in December 2023, when he was sole director and the only one authorised to lodge them for the company, he said, “I don’t know who lodged this”.
Toma, whose examination continued from Thursday, responded “I don’t remember” to many questions from the liquidator’s lawyers, ranging from what his role was at Top Class Constructions to whether he finished kindergarten or primary school.
Asked how Top Class Constructions was able to invoice $28 million for eight days’ work for one Sydney CBD pub, he responded “the answer is I don’t remember”.
His memory cleared up when asked about Palasty’s role. He said that “from memory” Palasty had prepared all the Top Class Constructions invoices and instructed the tax agent to lodge them for GST refunds.
“Palasty – since the partnership, if you want to call it that – had a practical control of Top Class and its affairs,” he said.
“If there were any people employed or dismissed he was decision maker and if any invoices issued he was in control of them. He was in total control basically.”
Earlier in the week, tax agent Tania Salameh told the court Palasty sent her expenses and instructed her to draw up invoices for Top Class.
Lawyers for liquidator BRI Ferrier grilled Palasty and Toma over monies spent, including payments to Palasty’s wife from the Virtical group. Palasty said one $10,000 payment was “reimbursement of monies my wife put into the business” and others were “associated with her pay at the time”.
Palasty was discharged from his second bankruptcy in early 2023. He told the court he and his family had put $7.1 million into Virtical companies and they had not bought anything with the money from those companies.
Toma was also asked about his purchase of a number of Rolex watches, but claimed he had now sold them to “some bloke out of Melbourne ...I believe he’s either a dealer or a collector”.
Outside court on Friday, Palasty told the AFR Weekend that Toma was “very smart” and had set up 47 companies. “I’ve never set up a company, I’ve never paid for a company to be set up.”
