Tax Avoidance and Tax Planning: Understanding the Difference

Running Head: TAXATION
Taxation
Name of the Student
Name of the University
Author Note

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TAXATION
The primary objective of this report is to provide a clear conception regarding tax avoidance as
well as a depiction of the subtle difference between tax avoidance as well as tax planning. The
maximum limit beyond which tax planning activities can be regarded as actions for tax evasion
is to be depicted in this report. This report will also explain the scenario in context to legal
provisions as well as evaluate schemes involved. The aspects emerging from the situation will
undergo an examination under the scope of this report. Provisions advocated by the legislation as
well as their presidents in context to the above mentioned scenarios will also be listed in the
course of this report. Finally, the report will lay out a concluding statement after analyzing the
regulatory principles that are contextual in case of this scenario.
Issue
The concerned scenario in this instance is whether the structure that has recommended would be
liable to make Ian as well as Michael to pay problem or not. The issue further extends to the
acceptability of the arrangement which has high chances of being considered void as held by
Commissioner under consideration of the section BG 1 of the ITA Act 20071. The issue further
circumnavigates chances of the prevalence of management for avoiding tax that might be
attacked by the Inland Revenue considering the provisions of the anti-avoidance rule [GAAR]
emphasized by the Income Tax Act of 2007. Finally, it also requires consideration that whether
there might be consequences if this arrangement is implemented and if so what would be the
nature of its effects.
Regulations
Provisions of rules
1 The Income Tax Act 2007, s. BG 1

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TAXATION
The s BG 1 under the ITA act of 2007 holds that arrangements that have the potential for tax
avoidance are to be considered as void by the Commissioner so far as tax payments are
concerned. Provisions of tax advantages of any kind by undergoing implementation of the
arrangements can be fully exposed by the Commissioner when any taxpayer has availed the tax
avoidance scheme.
The above mentioned section of the Income-Tax act of 2007 provides authority in the hands of
the Commissioner for alternating the adjustments. In case if the Commissioner considers the
arrangements to be void under the spectacle of the BG 1, he has every right to arrange for
alternative adjustment. The Commissioner can make the Adjustment in any way that he Dims
appropriate and relevant to the context. In alternate in the case of tax advantage, the
Commissioner should be emphasizing on counteracting any related advantage that might have
been gained under the provisions of the scheme that enabled tax avoidance to any taxpayer. The
BG 1 also equips the commissioner with the authorization of withdrawing tax credits partially or
entirely for transfer permission to another entity for enjoying the benefit which the taxpayer has
been able to gain under the implementable scheme regarding tax avoidance2. The primary factors
that the Commissioner would consider while making such alterations are the expanse of income,
tax credit, tax laws as well as a viable deduction that the person would have been eligible for, in
the absence of the arrangements under the scheme for avoiding tax. Directions over income that
has been completed already, against the salary of an individual cannot be calculated as well as
incorporated in the income of a different person for what purpose is like tax payment. So far as
this Law Act is concerned, a tax credit to a section of partially taxable value by availing loan that
the taxpayer can get in context to tax payment.
2 The Income Tax Act 2007, s. GA 1

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TAXATION
The next section that needs to be considered under the Income Tax Act of 2007 is the YA 13.
Definition of relevant terms borne by this act is contained in this section. In the context of this
act, the arrangement can take the form of any agreement or contract or planning without
considering its enforceability. Tax avoidance can be best described as alternating the tax
liabilities which are currently applicable or in the future, parallelly reducing the current Tax
liability. The coinage, “tax avoidance arrangements” reflects some schematic arrangement that
has been sought after the primary objectives of tax evasion.
The next section that requires focus under the Tax Administration Act of 1994 is 141 D. This
section refers to the abusive position of tax as a position that can be held an acceptable and
whose implementation has been solely fuelled by the objective of tax evasion. The legal charges
against the adoption of abusive tax Positioning might be accounting to the entire tax shortfall
resulting from such an arrangement. The s 3 of the same act defines tax shortfall as a legal
charge that any person is liable to undergo for adopting wrongful text position. The same section
defines an abusive tax position as it has been considered in section 141 D of this equal act.
In context to the discussion of section 3 as well as section 141 D of the Tax Administration Act,
1994 calls forth a need to discuss the Section 5 of the interpretation act of 19994. This section
holds that the court should consider the real significance of one statute as well as the currently
employable intention in case of wholesome enactment of legalization for interpretation of any
law or the provisions of the same thereof.
Applicable case laws
3 The Income Tax Act 2007, s. YA 1
4 The Interpretation Act 1999, s. 5