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  • What is fraud and what is evasion?

    Fraud and evasion are separate and distinct concepts.

    Fraud

    Fraud, in the context of our amendment powers, involves making a false representation to the Commissioner. A representation will be fraudulent if the evidence shows the person knew it was false, or made it with such indifference to its correctness that the person could not have held any real belief that it was true.

    Evasion

    While the courts have been reluctant to define ‘evasion’, it has generally been taken to mean behaviour that involves some blameworthy act or omission that results in an avoidance or shortfall of tax. Blameworthy behaviour contrasts with what a reasonable person would have done in the circumstances.

    Typically, evasion in the income tax context involves omitting income from a return or wrongly claiming a deduction without any credible or excusable explanation. Even where an act or omission is unintentional, it may still be blameworthy when judged objectively against the standard expected of a reasonable person.

    In concluding whether or not evasion has taken place, it is usual to ask the following questions:

    • What should a person, standing in the taxpayer's shoes, be expected to have done if acting reasonably and honestly?
    • What reasons have been provided by the taxpayer for not doing what would be expected of such a person who acted reasonably and honestly?
    • To what extent are the taxpayer's acts or omissions still considered to be blameworthy in light of the reasons provided by the taxpayer?
      Last modified: 17 May 2018QC 41185