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Thursday, September 12, 2024

Kinselas, Courthouse buyer Virtical under investigation over $100m GST refunds

 

Buyer of iconic Sydney pubs under investigation over $100m GST refunds

David Marin-GuzmanLarry 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”.