Parliament has extended the "bright-line test" for tax on disposal of residential land from two to five years, following the third reading of the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill.

Revenue Minister Stuart Nash included the change in an amendment to section FB 3A.

He says the extension of the bright-line test will help dampen property speculation and make homes more affordable. It will ensure that residential property speculators pay income tax on their gains, making property speculation less attractive, Mr Nash says.

The amended bill passed its third reading by 63 votes to 57.

The new rule will be applied from 29 March 2018.