Canadian Taxation

Difference between tax evasion and tax avoidance

Published On September 25, 2013 | By Joseph (Ken) | Corporate tax, Government, Personal tax

Tax evasion and tax avoidanceDoes the CRA know the difference between tax evasion and tax avoidance?

Taxman chasing six Canadian families for $1B tax scheme

“The Canada Revenue Agency (CRA) is chasing six Canadian families, well-known in the business world, for $1 billion allegedly hidden in Caribbean tax havens.

“For nearly six years, the CRA has tried to use the courts to compile a complete list of investors in two mysterious companies registered in the British Virgin Islands.

“The names of the six families cannot be found anywhere in the documents. But auditor Ginette Phisel, from the CRA’s Montreal office, revealed in an affidavit that the taxman has already managed to identify some of the 101 Canadian investors in the offshore firms.

“If Revenue Canada tracks them down, it could be the biggest tax-evasion case in Canadian history.”

That’s a HUGE “if” considering that “Offshore havens have proven difficult for the CRA to root out, and the agency has so far been unable to secure a single conviction in Canada for offshore tax evasion.”

Not a single conviction for offshore tax evasion EVER!  If it is truly tax evasion what is the problem?  

“At the time, investors were bracing for changes to Canadian tax law that would force them to pay annual taxes on their foreign holdings.

“Investors responded by orchestrating a series of financial transactions involving offshore subsidiaries of Canadian banks, allowing them to continue to dodge taxes even after the changes came into force.

“In a 2008 affidavit, CRA auditor Pierre Leduc said Scotiabank charged investors annual fees of more than $1 million for a series of transactions involving two of its overseas subsidiaries. The manoeuvrings allowed customers to circumvent provisions of the new law.

The reason the CRA can’t get a conviction is that it’s not tax evasion, it is tax avoidance, as the article itself states the investors were charged annual fees which allowed them to circumvent provisions of the new law.  

Circumvent: as per “to find a way of avoiding a rule or law that limits you, especially using a clever trick that does not break the law

Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.”

“In contrast, tax avoidance is the legal use of tax laws to reduce one’s tax burden. Both tax evasion and avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state’s tax system, although such classification of tax avoidance is not indisputable, given that avoidance is lawful, within self-creating systems.”

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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