Under the law of the land, we’re all innocent until proven guilty. But when the ATO claims they have caught you claiming $50 million in fake GST claims, it’s hard to imagine you’ll have a leg to stand on in court. This case raises the question of how many other dodgy claims are out there for GST refunds.

The two guys named by the AFR’s David Marin-Guzman and Max Mason are former directors of the pub group Virtical (John Palasty and Mark Toma), who claim no knowledge of the scam claims for GST refunds.

Ultimately, a court of law will decide the truth of the matter, but the ATO thinks they have a pretty good case.

In case you don’t understand how a business plays the GST process, it totals up what the business collected in GST and then deduct any GST paid for business goods and services. If the GST receipts are greater than GST payments, you owe the ATO the balance. If GST in is less than the GST out, you get a GST refund.

Of course, when the refunds are so big that you cop a $50 million fine from the ATO, you’re certain to be investigated. But wait, there could be more.

The AFR reported the following: “The $50 million in ATO fines and repayment claims cover just half of Virtical’s 20 companies, which sources say have say have claimed more than $100 million in GST refunds and are also under ATO investigation”. 

The Virtical group of pubs involved famous Sydney pubs such as the Courthouse, Kinselas and The Republic. The Adelphi in Melbourne and companies in Queensland made the whole tax story a national activity.

Interestingly, some of the GST claims were allegedly for pubs that the group allegedly were going to buy but never actually proceeded with the purchase!

The ATO has put together a story of the network of companies allegedly linked to the directors doing or not doing work for the pub businesses and claiming GST refunds for renovations, building, etc.

Many of these are claimed by the ATO to be false. Clearly, a lot of red flags had been raised, so the questions asked by Tax Office investigators brought forth answers that resulted in a demand for the directors to find $50 million in back taxes and penalties.

Ultimately, the directors will have their defence, and a court will decide the substance of the ATO’s claims against these businessmen, but the whole affair makes me ask: just how big could the GST scam be, where businesses overclaim their GST payments?

As the AFR’s writers point out, only an ATO inquiry would mean the claimers have to produce receipts and so long as the claims aren’t too large, then the scam GST refunds could be huge nationally.

Of course, the ATO would have processes to weed out the easy-to-see dodgy claims, and I suspect Artificial Intelligence is going to improve the detection of scam merchants. But it does raise the question of how much of our taxes are going to those who have the guts and temerity to game the system and try and pull the wool over the eyes of the ATO?

The GST was meant to reduce the size of the black economy. Who would’ve have thought this relatively new tax would actually create new opportunities for tax dodgers?