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Tax minimising vs tax evasion, what’s the difference?
Hi everyone,
I believe many of you have been following the saga over Hunter Biden’s scandals that include a multitude of things. Of one is tax evasion.
Now I’ve studied our modules over the past year on minimising taxes and I’m wondering if someone could help me unpack the puzzle of what is minimising tax and what is evading tax.
Mark has shown us that we can use unregistered trusts to help shift our wealth outside of their jurisdiction. He has also shown us that we can minimise our tax by defining “sweat equity” or “reward for our labours” so we aren’t reporting income. Plus, we may take the risk to apportion some of our sustenance as Other Work-Related Expense to reduce our taxable income to increase our refund.
What I am interested in getting your views is how does this differ from tax evasion?
If we know these methods, then why don’t the Bidens and countless others in the last century or so use this same method and therefore not face charges of tax evasion? Those guys are criminals and crooks. They know the rules as they make them or know the puppetmasters who did. What do we know that they don’t?
Hope to hear your thoughts on this devil’s advocate post.
God bless,
Brian
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6 Replies
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This is what the IRD in NZ says about tax evasion… “What is tax evasion? Intentionally not paying the correct amount of tax.
This could be by not telling Inland Revenue about income earned or by
inflating expenses which you can claim against your income (this reduces
tax to pay).Criminal offences for evasion can include: not keeping legally required books and documents. not providing information, including tax returns and forms, when required. providing altered, false, incomplete or misleading information. not making a legally required deduction or withholding of tax.1 Apr 2023″
So it would seem if you use the term ‘tax evasion’ it puts you under their jurisdiction so probably not a good term to use.
This is the definition of tax avoidance from Investopedia.com .. “The term tax avoidance refers to the use of legal methods to minimize the amount of income tax owed by an individual or a business. This is generally accomplished by claiming as many deductions and credits as are allowable.”
However you wouldn’t want or need to to use either of these terms. Because there is also legislation around the term ‘tax avoidance’ then either of those terms could potentially put you under their jurisdiction.
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Ok, so if we are redefining what is deemed “income” in the tax department’s eyes and it cannot prove that we have not disclosed information that it can use, then technically it is neither tax evasion nor avoidance.
We are basically playing the word game because the system has used words to take advantage of us.
Would that be a valid perspective to take?
So let’s use an example.
Entity A (sole trader) has provided a service for Entity B (private individual) that helps Entity B becoming more capable of improving their ability to generate an income in the future. Entity B pays in cash. Entity A issues a cash invoice.
Entity B is claiming a work-related expense and has the cash invoice to substantiate.
Entity A as a sole trader does not report the service provided as income because it is compensation of his/her labour.
In the event the tax department audits Entity B to seek further evidence of the work-related expense, Entity B presents the cash invoice. The tax department does not need to go to Entity A to seek confirmation, correct? I am assuming that the amount claimed is not a big amount that sticks out like a sore thumb.
Please tell me what problems or risks arise in this situation.
God bless,
Brian
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if entity B wants to stay in the private then he wouldn’t want to claim anything from the tax department as this still gives them jurisdiction over your private affairs. You might find this interesting.
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The reason why I raise the issue with Entity B claiming deductions is because many are in the situation where they are employed to do work for an organisation. Many are professionals without the network to set up doing their own thing especially in financial services, health and legal. Therefore they need to find ways to incur legitimate expenses to deduct from their income to access the tax withheld from their employment income.
I believe the majority of the working population in the professional class face this problem.
God bless,
Brian
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Hi Brian if you read the above PDF you might see some potential solutions to this conundrum.
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Yeah, that was useful. Thank you.
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