Which of these is legal and which isn’t? Let us uncover the differences of these.
Property Tax have a number terms used to describe strategies and behaviors involved, such as “tax minimization” or “tax avoidance” in the corporations and academic accounting literature on tax. This can result in confusion about what exactly is being discussed or alleged. With this, there are further baffled effect by which some of these terms are being used interchangeably, both within the mainstream and within academic.
Property Tax Evasion
This usually signifies an illegal tax-reducing arrangements. However, this should refer to any wilful misrepresentation of tax affairs, as some entities may enter into such an arrangement unconsciously. Furthermore, any entities can and do implement a broad range of tax positions. Many of these arrangements have never been challenged and subject to Tax Office or judicial determination, with their status being undefined such determinations, including appeals, may also take many years to complete, leaving similar arrangements elsewhere in limbo. In other words, the distinction as to what constitutes tax evasion is determined by court. The Tax Office is the agency responsible for assessing whether strategies and transactions are tax evasion or legitimate tax-reducing arrangements.
It only becomes “tax evasion” once it has been determined as such by the Tax Office, or by any courts if challenged.
The academic literature has adopted the concept of a variety of tax-reducing arrangements. These range from benevolent benefits that are actively encouraged by the tax system, such as research and development and capital allowances, through to outright tax evasion, such as artificial inter-company transfer pricing and thin capitalization.
There are also many online forums giving free advice on reducing property tax but always consider using a paid expert.
The starting point for the continuum is the tax outcomes that would exist if tax considerations were totally ignored when entering into business strategies and transactions.
Anything that reduces tax liabilities from that point is regarded as “tax minimization” or “tax planning”. There is no upper limit to the range of tax minimizing activities.
PROPERTY TAX AVOIDANCE
“Tax avoidance” refers to tax planning activities that have a low level of probability (less than 50%) of surviving a tax audit, as opposed to those activities that are outright illegal or wilful misrepresentation. Another term quite often used is “aggressive tax planning” which is used in Australia but is known as “tax sheltering” in the UK.
To wrap it up, a line between “tax avoidance” and “tax evasion” can be very thin and at times indistinguishable. The test applied in judicial determinations is based on the “dominant purpose” of a transaction or activity and this concept underlies the anti-avoidance provisions of the tax legislation.