Tax Avoidance vs. Tax Evasion – Do You Know the Difference?
Tax avoidance and tax evasion are both methods of reducing the amount of taxes paid. The essential difference between tax avoidance and tax evasion is legality: tax avoidance is perfectly legal, while tax evasion is illegal.
Tax evasion can come in many forms: two examples are cash income that is earned but not reported, and a charitable donation claimed that was not actually donated. The penalties for tax evasion can be severe: a person convicted could face fines of up to $100,000 ($500,000 for corporations), and/or a prison sentence of up to 5 years.
Tax avoidance uses legal methods to reduce taxes payable as much as possible. There are many ways to reduce taxes legally: some examples include optimizing RRSP contributions, taking advantage of the small business deduction, and declaring business expenses such as a home office or CCA. These tax planning opportunities and more are services we can provide for you; contact us today for help!
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.