Managerial Accounting and Taxation

Managerial Accounting and Taxation - EXLD512-09D

Assessment 1

Contents

Discuss using examples, the difference between tax evasion, tax avoidance and tax mitigation. 3

Should the tax system be used as a tool of government policy? 4

Research the pros and cons of alternative forms of taxation, such as the wealth tax, death duties and CGT. 5

Bibliography 7

Discuss using examples, the difference between tax evasion, tax avoidance and tax mitigation.

Tax evasion, avoidance and mitigation are all procedures trying to reduce the amount of tax being paid (tax liability).

Tax evasion in short is an illegal act that seeks to reduce the amount of taxes to be paid by means that are not lawful. Examples of this could be a retail business that fails to report income like declaring cash transactions or wrongly stating the value of property owned thus paying less taxes and not the amount rightfully due.

Tax avoidance is lawfully taking steps to minimise taxes by finding loop holes in the tax law where one can minimise the amount of tax liability. The biggest example of this in New Zealand is the Trinity scheme where investors brought a 50 year license to grow Douglas Fir trees on land owned by the Trinity Foundation and agreed to pay $2 million a hectare fee in 2047 when the trees where to be harvested. Investors depreciated the $2 million fee and deducted the costs of an insurance policy with a company in the British Virgin Islands thus having a loss attributing qualifying company. Inland Revenue Department (IRD) won this case in court and Trinity had to repay the tax plus interest. Other examples are deferring taxes from one year to the next, making charitable donations and investing money into bonds etc that have a lower taxable rate. Even though tax avoidance is legal as shown from the previous case IRD can choose to litigate with the courts then deciding on the outcome.

Tax mitigation is the behaviour of attracting less tax liability but not...