Pub empire raises ATO ire over ‘fictitious’ GST claims
The Australian Taxation Office (ATO) has fined Virtical Group $1.8 million for making millions of dollars’ worth of false claims for GST refunds.
The claims were related to bogus construction invoices for unowned property; whereby Virtical developed a block of land in Tasmania it did not own.
The ATO accused Virtical group of “intentional disregard” of the law and the initial fine could be the start of proceedings against the company.
Virtical burst onto the scene in 2023 acquiring venues including Melbourne’s Adelphi Hotel and Sydney CBD pub The Republic Hotel.
The company spent $125 million in just four months, however, the empire is now crumbling and in the past week, the group’s main financier has forced its two biggest assets into administration after issuing default notices on $90 million of debt.
A trust that previously owned the Adelphi Hotel claimed $26 million in expenses to receive a $2 million GST refund, though no development applications had been filed since 2022.
Virtical claims no new DA was needed for its refurbishments.
Businesses can claim GST refunds when expenses exceed income, but questions arose over Virtical's filings.
According to the Australian Financial Review, the ATO is investigating more than a dozen Virtical companies for over $100 million in GST refund claims that would have required $1 billion to be spent on development.
The audit has so far uncovered discrepancies in the claims of six Virtical trusts regarding $164 million in construction spending late last year. These trusts sought GST refunds of $14 million based on this expenditure. A portion of the construction costs were allocated to iconic Sydney venues, Kinselas and The Courthouse, which Virtical did not purchase.
It is alleged Virtical Group relied on invoices issued by Top Class Constructions, a related construction firm controlled by the group’s former managing director, Mark Toma.
The ATO’s audit, anonymously sent to the Financial Review and verified by sources familiar with the investigation, details the Tax Office’s decision to increase the $1.5 million fine by 20%.
This increase was due to the company and its managing director John Palasty, obstructing the Tax Office’s investigation into the shortfall.
“The significant amounts involved also demonstrate this is not simply a mistake or carelessness, it was intentional,” the ATO found.
“When requested to substantiate the claim, you failed to because you knew at the time of lodgement that the claim was fictitious, and you made a deliberate choice to ignore the law.”
The Financial Review also reported that Bond Finance has put Virtical’s Hotel Australasia on the NSW South Coast into administration.
Virtical is also currently involved in a legal dispute in the NSW Supreme Court to rescind its $61 million acquisition of Sydney’s iconic Kinselas and Courthouse pubs.
Despite not having paid for these pubs, the ATO audit reveals that Virtical’s trusts established to purchase the venues claimed $73 million in “capital acquisitions” between September and December 2023.
This resulted in GST refunds of $6.8 million.
Palasty, who took control of the group in November, denied the company was under audit for its GST claims, though an ATO audit in June was addressed to him, referencing ongoing conversations since January. The audit concerned Cedar Grove Tas Unit Trust, which sought $2 million in GST refunds for $20 million in construction costs, despite not yet owning the land or providing contracts to justify the claims.
Palasty denied authorising the claims, stating that the tax agent filed them without his knowledge and alleged Toma was responsible.
Palasty later withdrew GST claims for Cedar Grove and four other trusts after admitting they were not entitled to the refunds.
The ATO concluded that Cedar Grove's GST registration was solely to claim credits without legitimate transactions.
Earlier, a company linked to Toma was fined $380,000 for false GST claims, involving the ownership of luxury cars, including Porsches and BMWs.
Jonathan Jackson, 30th September 2024
