PART A

INTRODUCTION

The issue that the Inland Revenue Department (IRD) is disputing is whether Owen was considered to be in business during the years ended March 2008 and 2009. To determine this, we need to look at the definition of a business and compare the facts in Owen’s case to conclude whether a business exists. In considering this, we will need to determine the dates of commencement and cessation for the business (if it is in fact a business) to help us decide the period in which expenses can be claimed.

DEFINITON OF A BUSINESS

The Income Tax Act (ITA) 2007 defines business income as “An amount that a person derives from a business is income of that person” (Income Tax Act (ITA) 2007. s.CB 1(1)).

Furthermore, a business is defined under s. YA 1 (ITA 2007) as “any profession, trade or undertaking carried on for profit”, however the actual accomplishment of profit is not the sole requirement in establishing whether a business exists or not. Whether Owen is engaged in a business comes down to a two-fold test for a business, formulated by Richardson J in the case of Grieve v CIR (1984) 1 NZLR 101 (CA), which involves asking:

a) About the nature of the activities carried on (not a hobby or pastime).

b) About the intention of the taxpayer engaged in those activities.

When looking at the (a) nature of the activity, we have to consider; the period over which the person engages in the activity, the commitment of time, money and effort, the scale of the operations, the volume of transactions, the financial results and whether the activity is carried on in a similar way to other businesses within the same industry. Additionally when looking at the (b) intention to make a profit, we need to look at more than just what Owen states he “intended to do”, Owen’s ‘actions’ will ‘speak louder than words’.

Owen’s business amounted