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I have currently purchased a car from a Wellington car yard. I took the car for two test drives prior to purchasing and on both times I picked up the car it was waiting for me with the windows down. I didn't think anything of the windows being down as the weather was extremely warm and I just thought the car yard was being most thoughtful, having the car aired out for me upon driving it. Since getting the car home, it is obvious that the car has been previously owned by a heavy smoker. The car when shut up and especially when its been a sunny day has a terrible over powering smell of smoke and air freshener, I have been unable to drive it since purchasing it as it has been so bad. Had I smelt a hint of smoke I would not have taken the car for a test drive, let alone have purchased it, being a staunch non smoker myself and concerned for the health issues of being in a car inhaling second hand smoke. The car yard have given me two options 1) to clean the car again to try and get rid of the smell or 2) take another car (same make and model) but a year older in age and different in style, should I take up this offer, they will charge me $600 in registration fees, I am not prepared to pay for this option. I feel they tried to hide the smell of smoke from me when presenting the car with the windows down and that they have misrepresented the car. While they have offered to try and get the smell out, I am not convinced that they will be able to eradicate the smell (there are studies that show the long term staining of poisonous smoke toxins) and what if they again mask the smell from me and a couple of months down the track the smell returns. This is actually a health issue for me (as I mentioned before with the repercusions of inhaling second hand smoke). I would like a full refund as I don't feel they can guarantee me that the smell wont return in time. I would really appreciate some advice on what my options are. Many thanks.

You are quite right in not wanting a car that's been used by a heavy smoker. No matter how much they clean it, you will never get rid of the smell. I wouldn't want one either.
However, the difficulty you have is that you took the car for 2 test drives and went ahead with the purchase, so on that basis, if you went to the Motor Vehicle Disputes Tribunal, in an attempt to reject the vehicle, I think it would be a difficult case to win.
I certainly would want out of this car, so the second option the dealer has suggested of replacing the vehicle may be your best option. You don't say what make, model, mileage and age this vehicle is, but it may be that the year older is less of a concern than the lingering smoker smell. However, I agree that you should not have to pay the On Road Costs of the second car, so try to negotiate a direct swap.
If you do want to go down the track of trying to reject the vehicle, I think your main basis would need to be because the vehicle was misrepresented (in having the windows open and the car aired out when you drove it). Whether you could win under other circumstances (ie; under the Consumer Guarantees Act - due to perhaps the car not being fit for purpose) might be possible, but as there are no serious mechanical, structural or other defects, as I said, it could be a difficult case to win.
Good luck in finding a resolution to this matter.

Many, many thanks for your speedy response, this online service really is fantastic and I will be recommending to others. Yes, I hope to have a resolution soon.

I have had few disputes settled in my favour over the years, I was somewhat intrigued with the health issue you raised, if you decided to raise a complaint I would suggest the health issue could be the key, however that said you would need to provide documentation attesting to that from a registered medical practitioner, also the possibility of any reports from government agencies confirming a link to health problems with embedded tobacco residue, what ever you decide I wish you well