Tax investigators are door-knocking speculators - including those seeking to avoid the brightline law - as they work to reclaim $80 million in unpaid property taxes.
New Inland Revenue (IRD) data shows as many as one in four transactions where the brightline rule applies could be non-compliant, including an increased number of deliberate dodges.
Last year alone, unpaid tax from speculators or "traders", including the brightline, was $23 million. Another $57 million went unpaid in property-related GST, rental income and taxes due from builders and developers.
IRD said some of those traders were actively trying to hide their property transactions to get around the brightline - which taxes profit made on the sale of residential investment property sold within five years of purchase.
"Often [this is] by claiming the sale was that of their main home so they can avoid having to provide an IRD number," IRD spokesman Richard Owen said.
Owen said legislation currently before Parliament would require IRD numbers to be attached to almost all sales, removing the ability to hide behind the main home exemption.
A report released to the Herald showed of the 6281 properties that met the brightline criteria last year, just 2276 were deemed compliant - i.e. the tax had been paid.
The other 4000 would require further review. Around 40 per cent of those were expected to be non-compliant, the documents said.
To encourage those people to pay their brightline tax, the IRD would first send targeted letters, then carry out one-to-one visits if necessary.
Last year, officers from the Property Compliance Programme either phoned or visited more than 1000 speculators during their review period.
The compliance unit would then send another "nudge" letter - the final chance for customers to voluntarily comply before they are subject to an audit, and possible enforcement action.
Auckland Property Investors Association head Andrew King said he was surprised compliance was so low.
Traders - which he defined as separate from investors or landlords - should know better, he said.
"They should be paying even before they get a letter. I think the people who are trading properties and not paying taxes are taking a real risk. It's generous to say they don't know."
Tax consultant Terry Baucher said it was clear traders were attempting to rort the "main home" rule, but to do so was a mistake.
He'd seen investigations where IRD were easily able to prove a trader's intent was to on-sell for profit, despite claiming a "change in circumstances".
This included a trader claiming a bare section wasn't big enough for a four bedroom home - but selling to someone who built a four-bed on the same space.
Another bought a two bedroom house and said it wasn't big enough for a family of four soon afterwards. "Did he not know he had a four person family when he bought it?," Baucher said. Investigations revealed the man had bought-and-sold 18 homes in three years.
"Underestimate the IRD at your peril. You never knew what they can find out."
When do you have to pay tax on property profit?
Capital gains tax currently applies in two circumstances:
• To people who buy a property with the intention of gaining income from it on resale, whether or not it is the family home;
• Those people who sell an investment property within five years of buying it (the brightline test).
The brightline test does not apply to owner-occupier homes unless the person buys and sells properties twice or more in two years.
Brightline was brought in by the National Government at the end of 2015 as a two-year rule, and was later extended to five years under the coalition Government.