Part A a) Section CB1 taxes income derived from a business whereas any profits or proceeds from hobby will not be subject to tax under that provision. [NZT 3.4] In case D54 (1980) 4 NZTC 60, 825: an intention to engage in activities that amounted to no more than the pursuit of a hobby should not be equated with an intention to make a pecuniary profit. The TRA conclude that the taxpayer`s dominant purpose in deer hunting was recreational, not income producing. The selling of the carcasses was of secondary importance only. Owen leaves the teaching profession and concentrates on one of his favorite passion of gardening. He plans to starts a venture on an undertaking of sale of potted flowering plants. And then spends much time on gardening, finally, according to many times experiments and consult with experts, he find a better soil mix for the plants that makes him more professional. After that, Owen is aware there are just a few established suppliers for the whole New Zealand market of plants. He thinks it will be a good chance for him to become a competitor in a good profitable supply market of plants and prepare start his venture undertaking. Thus, in Owen`s intention, gardening is not only Owen Smith`s recreational activities, but a venture business for him to make substantial profits. And the selling of potted plants is him dominate purpose now.

b) [ NZT 3.2.1] there are several factors should be considered when determine a taxpayer`s intention to make profits:

Nature of the activity. Owen moves to a small rural township and lease a greenhouse nearby. He installed automatic irrigation and temperature system for growing of plants. And also together with ancillary benches and shelves. He undertakes a part-time job to support family and his business. So he is not exist to start undertaking in the mind, he just dose real activities to supply a good growing conditions for plants and prepare to start his business.

Period, scale of operation and volume of transactions. Owen`s business has grown into a regular commercial production for provide 200 potted plants in flowers and fortnightly supply to retailers in the end of 2008. Then, he tries to build a good relationship with retailers by a low selling price. He is succeeding to gain a foothold in the market and wants to also expand his business which he dreams to be an established and reputable supplier. Now, Owen`s undertaking is more regular and awareness in the market of plants. Real transaction: a business cannot exist in the mind of the taxpayer alone, it must involve real transactions carried on for a pecuniary profit. Calkin v CIR [1984] 6 NZTC 61782. Section YA1 Business (a): business includes any profession, trade, or undertaking carried on for profits. Owen Smith dose regular commercial production and supply to retailers fortnightly. It is the real transactions from production to selling for a pecuniary profit.

Commitment of time, money and efforts. In January 2009, Owen reduces the working time of his part-time jobs and working more than 25 hours per week on his business. He expands the undertaking by order 6600 plants from a propagator, and purchases a vehicle convenient to meet his clients over South Island. But he lost the occupancy right to use the greenhouse in July 2009. Without it, he cannot grow plants and operate the business anymore. At the last, it is affect his undertaking into a lot of losses. Eggers v CIR (1988): no business if activities preparatory to starting business. And the expenditure incurred in preparation is non-deductible. Between 2008 and 2009, Owen Smith is already starting his business, and operating in a