What is fraud and what is evasion?
Fraud and evasion are separate and distinct concepts.
Fraud involves the making of a false representation to the Commissioner. A false representation will be fraudulent if the evidence shows that the person made the representation knowing it was false or with such a degree of indifference to, or lack of concern about its correctness, that it can be concluded that the taxpayer could not have held any real belief in its truth.
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 for such action. Unlike fraud, evasion does not rely heavily on a person's intention; 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?