What is the difference between avoiding and evading taxes. Avoiding taxes involves legally restructuring your finances and affairs to reduce taxes or increase tax deductions. In Canada, you can claim deductions for eligible medical expenses, educational expenses, and monthly public transportation. If you don’t claim the deductions, you would simply end up paying more in taxes. You can avoid paying taxes on a certain percentage of your income by investing the money in a registered savings account.
Tax evasion is illegal. It involves “attempting” to reduce taxes by illegal means such as destroying financial records or making false statements. In Canada, If you get caught, you will have to pay very hefty fines which could be up to 200% of the amount in question plus backdated interest charges. You could even end up in prison for up to 5 years. US is even stricter on tax evasion. Clearly tax evasion is not worth the risk.
If you have evaded tax in the past, you can still save yourself. In Canada, you can either file a voluntary disclosure or a T1-ADJ to tell that government that you made a mistake or evaded tax and would like to come clean. In most instances, this would grant you immunity from prosecution. However, this is not something you should do on your own initiative. Use professional help and advice for this.
