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By LegalMatters Staff • Most Canadians look for ways to reduce the amount of taxes they pay to the government each year. Some tactics, such as investing in tax-sheltered accounts, are perfectly legal.
But other strategies may be regarded as either tax avoidance or tax evasion. While the second can result in criminal charges, tax avoidance can result in administrative penalties.
“Unfortunately, the line between lawful tax planning and abusive tax avoidance can be blurred,” says Ottawa criminal lawyer Céline Dostaler.
She notes that the Canadian Revenue Agency (CRA) defines tax avoidance as “unacceptable and abusive tax planning … that is inconsistent with the overall spirit of the law.”
“An example would be if you own a business employing your spouse,” says Dostaler. “If you overpay your spouse to lower the firm’s taxable income, that will be considered a form of unacceptable tax avoidance.”
By comparison, tax evasion would include falsifying records and claims or purposely not reporting income, she says.
“Tax avoidance results when actions are taken to minimize tax within the letter of the law, even though those actions contravene the object and spirit of the legislation,” says Dostaler. “Tax evasion typically involves deliberately ignoring a specific part of the law.”
She explains tax evasion has criminal consequences including incarceration for up to 14 years.
“Tax avoidance is dealt with through fines and demands that you pay the amount owed,” says Dostaler.
