Question

Discuss the difference between tax evasion and tax minimization. Consider when will the tax office deny a deduction based on a taxpayer’s subjective purpose or intention in incurring the expenses Explain in around 500 words and refer to Australian law

Answer 1

Tax evasion is the illegal practice of not paying tax. In tax evasion tax is computed and not paid by the payer. So, it is punishable offence in accordance with tax law.

Tax minimisation is the minimising tax using the legal aspects of tax. It is a legal way to reduce tax liability. Tax minimisation done through accurate tax planning. The tax payer can minimise tax using the deductions and exemptions availed by the tax department.

Tax office deny deductions based on intention on incurring expenses. Intention on incurring expenses means that, expense made for availing deduction to reduce tax liability. For example, donation to charitable activity but it is made with the intention to reduce tax liability.