A taxpayer bought land, incurred development costs on it and planted a small number of palm trees. His expressed intention was to grow them to maturity for ultimate sale. He carried out his plan in a haphazard manner by planting more for landscaping purposes than as a plantation and failed to follow industry practice. There was an insignificant potential return compared with the cost of the land and associated interest expenses and he sought to deduct interest expenditure from his plantation income. The Commissioner decided that the taxpayer was not operating a business for tax purposes and disallowed the interest deduction.

Required: Discuss whether the Commissioner’s assessment was correct and whether the plantation activity carried on by the taxpayer was business income for tax purposes. Your answer should incorporate the criteria used by Inland Revenue Department. Support your discussion with references to the Income Tax Act 2007(New Zealand) and appropriate case law