Derek is a police officer in Auckland. His house is located on a large corner site on

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Question:

Derek is a police officer in Auckland. His house is located on a large corner site on a main street, which provides good exposure to passing traffic. He was approached by a heat
pump company who offered him two heat pumps plus installation of the pumps in his house free of charge, in exchange for allowing the house to be used in a marketing campaign. The value of the heat pumps including installation was $4,500. The agreement required a sign to be erected on the outside fence of Derek’s house.

As part of the agreement, the house was also used in a television commercial which featured Derek enjoying a home warmed by heat pump. The heat pump company paid Derek $ 2,000 for the commercial.

During the same year he purchased a pearl necklace for $6,000 intending to give this to his girlfriend for her birthday but a month after the purchase his girlfriend broke up with him and he enrolled in a course about making jewellery. Using the new skills, he has learned, Derek broke up the necklace and set each pearl into a separate ring. He spent $200 on ring mounts and settings and sold all the rings for $11,000.

Required:

Discuss whether (a) the value of the heat pumps and installation, (b) the $2,000 payment for commercial and (c) $11,000 for sale of rings is assessable income to Derek. Support your discussions with references to the Income Tax Act 2007 and appropriate case law.