The Labour government says the bright-line test will not apply to severe weather-affected property buyouts.
The bright-line test means normally the profit from selling a second home or rental property is taxed at a higher rate than a family home, if it is sold within 10 years of purchase.
For example, a property owner who has owned a rental home less than 10 years will be taxed more than the usual rate.
But Revenue Minister Barbara Edmonds said it would be unfair to apply the bright-line test, because property owners of damaged homes had little option other than to sell up.
She said officials had advised it was difficult to say how many property owners would be affected by the bright-line test in this way, but estimate it could be a few dozen.
To make sure this was not applied, an amendment would be made to a piece of tax legislation currently before Parliament, through the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill.
"Hawke's Bay was only settled a few weeks ago... some commentary has caused concern, and so that's why we've released a statement just clearly setting out that we're turning off that test," she said.
But National MP Nicola Willis said the bright-line test was a capital gains tax by stealth, which captured people in all sorts of situations it was not designed to target.
"Anyone who, for example, moves out of their home for 12 months for renovations, for a military secondment, because a child is sick, they will be captured if they sell their home within a 12-month period."
She said National would take the bright-line test back to two years.