How does tax planning differ from tax avoidance and tax evasion?

How does tax planning differ from tax avoidance and tax evasion?

Under federal tax laws, taxes have to be paid, but the laws also provide credits, benefits, refunds, and other entitlements. While tax avoidance and tax evasion would seem to be synonymous in layman’s terms, there is a definite distinction under Canadian tax law. Tax planning is the organization of your affairs to minimize your income tax under the law.
Tax avoidance results when actions are taken to minimize tax, while within the letter of the law, those actions contravene the object and spirit of the law. Tax avoidance, when discovered, will result in the reassessment of income tax information returns and income tax being levied.

Tax evasion typically involves deliberately ignoring a specific part of the law. For example, those participating in tax evasion may under-report taxable receipts or claim non-deductible or overstated expenses. They might also attempt to evade taxes by wilfully refusing to comply with legislated reporting requirements.
Tax evasion, unlike tax avoidance, has criminal consequences. Tax evaders face prosecution in criminal court.

Tax planning is the arranging of your business affairs in the most efficient manner possible. This efficiency will most likely result in the reduction of income tax. Tax planning is acceptable practise in Canada, and in the absence of avoidance or evasion, will not result in a reassessment and income taxes being levied.