If I send a iTunes gift card from Australia iTunes Store online to New Zealand can they purchase item from there nz iTunes Store ? ??

No, all gift cards are country-specific - so an Australian gift card can only be used in Australia with an Australian iTunes account

This possibly the dumbest thing Apple can do. I just found out the hard way my father in law will not be getting his christmas present. Yes I should have read the fine print, but I honestly thought Apple was smarter than that.

Obviously they haven't seen the money making potential of this so now I will ask for a refund and take my money elsewhere.