PROPERTY SYNDICATES Govt may take wider action

Press, Volume CXI, Issue 32703, 4 September 1971, Page 1

PROPERTY SYNDICATES Govt may take wider action

(From Out Own Reporter) i WELLINGTON, September 3. Action directed against some activities of property syndicates, foreshadowed yesterday in Parliament by the Minister of Finance (Mr Muldoon), is likely to go considerably further than the measures indicated by him.

Aspects of the syndicate system, as applied to property deals, are still under close scrutiny by the legal and commercial advisers of the Government, and probable further moves will not be disclosed.

“The object of yesterday’s statement was to warn the public that this investigation is going on,” a high Government authority said today. “It must be emphasised that there is nothing illegal about these activities, as the law is at present. The element of risk to the casual investor, however, may be higher than has been thought.” Syndicates in which there are more than 10 members, and whose principal function is to hold real estate for investment or sale, will be-

. come companies for income i tax purposes as soon as the ; relevant legislation is passed. . This may be simply an addL tion to the Land and Income Tax Amendment Bill, which is on the Parliamentary Order Paper awaiting a second reading. 1 The second provision an- ! nounced by Mr Muldoon, ■ which would make- distribu--1 tions to syndicate members ' taxable as dividends, could 1 be dealt with similarly. Another course would be to > amend the taxing act , One point which is bei lieved to be deeply concem- ■ ing the Government’s legal • advisers is that at present

members of the public joining a syndicate may find themselves jointly and severally liable for any debts contracted by that syndicate. This would mean that if such a syndicate made a miscalculation in the purchase of property, any member of the syndicate could be deemed liable for payment of the full amount of any debt incurred. Members of unit trusts are not in this position, as. unit trusts are deemed to be companies, and the 'liability in such cases is limited. Tax avoided . Government authorities believe that one of the reasons for high dividends being paid out by property syndicates is that they have found a legal way of avoiding taxation. Treasury officers take the view that a portion of their dividend should rightfully belong to the people of New, Zealand through the taxation

system. Another point being investigated involves the use of life-insurance policies as a method of raising money for investment in property syndicates. It is likely that this door will also be closed, but there is ho intention to act quickly. A Government source confirmed that, apart from the dangers to small investors, a reason for official action lay in the amount of investment i capital which had been siphoned from the small investor in tire three years and a half durihg which the property Syndicate had been working in this country. The most heavily hit parties, he said, had been the trading, and trustee savings banks, the Post Office Savings Bank, and building societies. Through these and other sources, local body loans had begun to suffer. As capital sources of this type of investment were limited in a country of New Zealand’s size, this was throwing the whole financial system out of balance.