Curb on property syndicates

Press, Volume CXI, Issue 32702, 3 September 1971, Page 1

Curb on property syndicates

(New Zealand Press Association)

WELLINGTON, September 2.

Legislation will be brought down later this session to provide special income-tax provision for property syndicates, the Minister of Finance (Mr Muldoon) told Parliament this afternoon.

Making a special statement to the House, Mr Muldoon said the Government had been concerned for some time at the rapid growth of such syndicates. “While they can be a desirable form of investment, if too much capital was to be invested in these syndicates it could bring about an undesirable investment pattern in New Zealand,” he said.

“The syndicates take various forms such as special partnerships, ordinary partnerships, and other forms of joint undertaking,” Mr Muldoon said. “Some of these may already be assessable for income tax as companies because they come within the definition of unit trusts as definied for tax purposes.” To remove some doubt in the matter and to place some curb on excessive investment in property syndicates, the Government had decided to adopt the following incometax measures:

DEEMED COMPANIES All syndicates—whatever their form —in which there are more than 10 members and whose sole or principal function or purpose is to hold real property for investment or sale will be deemed to be companies for incometax purposes. Syndicates which come within these criteria will be assessable at ordinary company rates, and dis-

tributions to members will be treated as dividends.

“The new legislation will apply to syndicates which come within the criteria to which I have referred, whether they were formed before or after the passing of the legislation,” Mr Muldoon said.

“However, to give those syndicates already in existence an opportunity to regularise their position, the new legislation will not come into force immediately. The exact starting point will be given in the legislation.” Several syndicates had been formed based on funds obtained from life-insurance policies assigned by the members to the syndicates, Mr Muldoon said. It was considered that the use of lifeinsurance policies in this way placed them outside the traditional function of life insurances, which , the special exemption for premiums was intended to encourage. “It is, therefore, proposed that premiums on life-insur-

ance policies assigned to property syndicates will not qualify as special exemptions,” Mr Muldoon said.

Syndication for the development of properties in New Zealand began in Auckland towards the end of 1967, and started in Christchurch about two years ago. A great deal of development has been undertaken recently in Christchurch by way of syndicates, including a hotel, motels, and many commercial-buildings. The syndicates have offered a net return of from 9 to 12 per cent to investors, and have attracted in the main the person of limited means by asking only a minimum of $lOOO in some recent schemes, only $5OO. Most syndicate management experts consider that the Government will give a period of up to three years in which syndicates must be reduced to a maximum of 10 investors. However, the announcement that company tax will be levied on larger syndicates will make a net return of 10 or. 11 per cent much more difficult to hold out as an inducement to persons to invest in property syndicates. LOCAL-BODY LOANS A concrete effect of syndicated property schemes in Christchurch has been the fall-off of investment in local-body loans—offering less than 8 per cent, with tax to pay. The Christchurch City Council, in particular, has found it difficult to attract investors over recent months while syndicates have multiplied in Christchurch. Two commercial building S“ itions begun in Christrecently, and a third to have been advertised next week—involving a total of more than ssoo,ooo—will be

particularly hard hit Due to be launched next week was a syndication scheme to raise $4.5m to build a tourist hotel in Riccarton and another in Picton. ■‘The Government is making it harder for the little man to have an investment in property development, for the benefit of the community, at a worth-while return,” said an investor in two Christchurch syndicates. “It does not affect companies issuing debentures and bonus shares to get finance for property development—they already paid company tax,” he said.