5. Income

Louis Hamiltin is an automotive mechanic employed in a Christchurch garage. He is also a car enthusiast who owns several classic Mercedes cars. In September 2020 he becomes aware of a classic McLaren sportscar that is being offered for sale on an on-line auction site. Louis has considerable knowledge of the market value of classic vehicles and realises that the McLaren is listed for sale at a price considerably less than its actual market value. He believes he could on-sell the McLaren for a considerable profit. As a member of a classic car club, Louis also intends to take the McLaren to car rallies hosted by the car club. Louis successfully bids at the on-line auction and purchases the car.

Over the summer Louis takes the McLaren to three classic car rallies. At one of the car rallies it wins an award. In March 2021 he enters the McLaren in an auction of classic cars in Auckland. A number of collectors are interested in the car and, as Louis suspected when he acquired the car, it sells at auction for a significant amount more than he paid for the vehicle.

REQUIRED:

Louis, after reading information on the Inland Revenue website, seeks your advice on whether he is subject to income tax under section CB 4 of the Income Tax Act 2007. Explain your answer with reference to relevant case law. State any assumptions you may make.