The strings are unravelling on the rise and fall of the skyrocketing Virtical Group, as the ATO unleashes the first of what could be many fines for improper tax claims.
An audit, which is the first to emerge from what are thought to be ongoing ATO investigations, was obtained by the Australian Financial Review. Relating to business activity statements (BAS) from just one of many companies, and only for the month of November last year, the repercussions are “potentially the tip of the iceberg”.
This instance is thought to be one of a series of lodgements by over a dozen Virtical companies recently revealed as currently being investigated by the tax office, as the pub group announced sale of the storied Republic Hotel in the Sydney CBD.
Investigations are said to relate to claims for over $100 million in GST refunds, stemming from a billion dollars in expenditure.
John Palasty became the sole shareholder and managing director of Virtical in November, and has previously denied the ATO was looking into the group.
The ATO has now issued a company controlled by Virtical a $1.8 million fine, which was a 20 per cent surcharge on the initial $1.5 million penalty as it reportedly attempted to cover “fictitious” claims when asked for evidence, and made a “deliberate choice to ignore” the law.
“The significant amounts involved also demonstrate this is not simply a mistake or carelessness, it was intentional,” read the audit.
Provided anonymously to the AFR, and said to have been verified by sources familiar with the investigation, the audit was primarily regarding GST refunds for development the company claimed to have done on a block of land in Tasmania.
Questions were broached over $164 million supposedly spent by six Virtical entities, including claims of $73 million in capital acquisitions during Q4 of 2023 at Kinselas and the Courthouse Hotel in Taylor Square, which it agreed to purchase for $61 million last September but attempted to get out of buying in July this year.
The Supreme Court sided with vendors MA Financial on the dispute, although efforts continue to appeal that decision.
A separate entity, holding Melbourne’s Adelphi Hotel that it bought in 2023, claimed $26 million for renovation works, although there has been no application for development of the hotel since 2022.
Cedar Grove, in rural Tasmania, is around 15-Ha of land that is vacant bar one small structure. The audit challenged $20 million said to have been spent on construction in November, which followed the $35 million spent the month prior, even though the company claiming this had not yet bought the land.
Invoices for the costs are said to have come from Top Class Constructions – a firm controlled until last October by Virtical’s former MD, Mark Toma.
A large-scale development at Eden was slated to produce multiple residential towers and a new hotel, but Toma and Palasty have cited endless council delays for its failure.
An anonymous source told PubTIC that investors were advised by lawyers to claim back their five per cent holding deposits when the developer stopped communicating, but despite repeated requests, after 12 months their initial cash payments have not been returned.
One of the investors burned, the source investigated the reasons for the problems at Eden, finding that construction costs had risen sharply, but after speaking to the mayor of Eden concluded that the delays could have been resolved, and that the real problem was that they “could not afford to build them for what [they] sold them for and started blaming others”.
Virtical crashed the pub scene early 2023, spending over $120 million on landmark hotels and properties in NSW and Victoria in a matter of months, through a litany of offshoot companies.
This week, hot on the heels of the hopeful sale of the Republic Hotel, for a roughly $10 million loss, Virtical’s primary lender Bond Finance snatched back the lower CBD pub, and its other primary asset, The Adelphi.
The following day it completed the coup, scooping up Hotel Australasia, near the Eden development, where a court recently ruled against the owners over unpaid works supposed to happen after the sale.
Seemingly incidental in the light of activity, Virtical was due to have settled on purchase of the closed Metropolitan Hotel on Sydney’s George Street this month, but is said to be having issues with current finance partner NWC.
Late August the group triumphantly issued release on sale of its Tasmanian development site, Cedar Grove, for $18 million.
“The sale of the development is in line with our strategy to concentrate our resources on our established Sydney hospitality assets,” offered MD John Palasty.
