Business income

Abstract

The wording of section 88(1) (a), as construed by the Courts of New Zealand today, provides few points of contention. This is not at all surprising having regard to the clarity of its language: "All profits or gains derived from any business (including any increase in the value of stock in hand at the time of the transfer or sale of the business, or on the reconstruction of a company) " Leaving aside the problems of assessing the increase in the value of stock in trade which is best treated in isolation, the words of the section do give rise to several problems of interpretation. Some of these, but by no means all, have been touched upon by New Zealand Courts over the years. During the course of this chapter, it is intended to deal with the following particular problems. First, reference will be made to the importance of the words 'profits or gains' as opposed to 'profits'. Another point which calls for discussion is what exactly do the words 'profits or gains' refer to; is it net or gross profits and does the section authorize assessment of capital gains or only those with the character of income? Also, the principle of mutuality must be briefly looked at. Why have the Courts held that the surplus from such operations does not constitute a profit? Finally, the question arises as to whether in reading section 88(1) (a), one should regard it as referring only to 'lawful' businesses. In what circumstances have the Courts permitted the assessment of the profits of illegal businesses?