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The exemptions to this new bright-line test will be if the property sold is the seller's main home, if it is part of a deceased estate or inherited, and or if it is transferred as part of a relationship settlement.
The tax will be on the seller's normal income tax rate.
The move, to take effect from October 1, is expected to address Auckland house inflation which has seen property values increase by 18 per cent in a year and 60 per cent since 2008.
At present, capital gains are taxed if IRD believes it was the intention of the seller to make a capital gain on a property.
That rule will remain in addition to the bright-line test so that if somebody flicked on a property after two years and one day, they would almost certainly have to pay tax on the gain.
The Government will also introduce rules that could make the over-heated Auckland housing market less attractive to non-resident speculators.
The Government had not forecast collecting anything extra in capital gains tax through the bright line test but it will make the rules clearer.
New disclosure rules will give the Government information about who is buying property - residents or non-residents.
All buyers and sellers of any property other than their main home will be required to supply a New Zealand IRD number as part of the usual land process with Land Information New Zealand.
And all non-residents will have to have a New Zealand bank account before they can get a New Zealand IRD number.
That information will help IRD to work out who is trading property for the purpose of making capital gain.
Under existing laws, IRD will be able to share that information with overseas tax authorities.
Mr Key also announced that IRD would get an extra $29 million in the Budget for tax compliance which in addition to the $33 million extra since 2010 in compliance and enforcement would total $62 million extra for compliance over the next five years.
That extra is expected to generate $420 million in additional tax in the next five years.
Mr Key said the Government would also investigate introducing a withholding tax for non-residents selling residential property.
Mr Key made the announcement at the National Party's lower North Island conference at Silverstream.
- Audrey Young