Planning to Avoid Evasion?

It's sometimes difficult to find the fine distinction between Tax Planning, Tax Avoidance and Tax Evasion, more so how far one can push a situation until it goes from Avoidance to Evasion. And, as we all know, the taxman doesn't like Tax Evasion (quite rightly so).

So, a quick lesson this week from the Smart Frog on the differences between the three.

Tax planning: When the legislation allows more than one possible treatment of a proposed transaction, tax planning takes place to compare various means of complying with tax law. It also includes ensuring that a client claims all allowances and reliefs clearly provided for by the law. Tax planning is completely acceptable.

Tax avoidance: Seeking to minimise a tax bill without deliberate deception, as this would amount to tax evasion or fraud. If the law provides that no tax is due on a transaction, then no tax can have been avoided by undertaking it. The term is now often used to refer to the practice of seeking to not pay tax, contrary to the spirit of the law. Tax avoidance is acceptable, but sometimes a bit iffy.

Tax evasion: The illegal non-payment or underpayment of taxes, usually by making a false declaration or no declaration to tax authorities. Tax evasion is a complete no, no.

So, dear reader, that's it. Sometimes the best tax advice is to plan to avoid evasion. The guy down the pub doesn't always know the difference, so don't listen to him. Listen to the Smart Frog. He knows best. As usual.