A capital gains tax on residential property sold within two years of buying it is being seen as a step in the right direction, but not far enough, with few expecting the new tax to have a big effect on Auckland property prices.

Prime Minister John Key announced the plan this morning as part of the Budget package.

The exemptions will be if the property sold is the sellers main home, part of a deceased estate or transferred as part of a relationship settlement.

The Prime Minister said that the current rules about 'intention' still applied so some people would still be taxed regardless of how long they had it, if their intention was clearly to make a capital gain.

Opposite parties say it didn't go far enough and would not resolve Auckland's housing crisis.

Property Institute chief executive Ashley Church applauded the newly-announced suite of tax and property measures. But he labelled them more "welcome tweaks" than major policy changes, saying the change in taxing capital gains was a change in emphasis, rather than something new. He said that it would do little to reduce house prices.

Changes that would require foreign investors to have a New Zealand tax number were also seen as positive, but not because they would reduce prices. And all non-residents will have to haver a New Zealand bank account before they can get a New Zealand IRD number. The information would provide greater clarity on the role foreign buyers have.

The Property Investors Federation however has said the capital gains tax decision is wrong, and that it was unclear what proportion of the market is made up of speculators and whether the new tax would make any difference. He did not believe it would affect landlords or rental prices because rental investors held on to their properties for longer than two years.

The move is effective from October 1st.

The Prime Minister also said the Government would investigate introducing a withholding tax for non-residents selling residential property.

Source: NZ Herald