Distinguishing Tax Evasion, Tax Avoidance and Tax Planning

In the past I have only sought to distinguish the illegal 'Tax Evasion' from the legal 'Tax Avoidance'. Indeed, I show a slide to this effect during some of my talks as it's important to ensure that clients appreciate the distinction.

More recently I came across a more detailed distinction:

Tax Planning - When the legislation allows more than one possible treatment of a proposed transaction, tax planning takes place when you compare various means of complying with tax law. It also includes ensuring that a client claims all allowances and reliefs clearly provided for by the law.

Tax Avoidance - (Previously assumed to be synonomous with tax planning) Seeking to minimise a tax bill without deliberate deception - as this would amount to tax evasion or fraud. Of course, if the law provides that no tax is due on a transaction then no tax can have been avoided by undertaking it. The term is now often used to refer to the practice of seeking to not pay tax contrary to the spirit of the law. Alternative prepositions are sometimes added to emphasise this - eg: 'abusive tax avoidance' or 'contrived tax avoidance'.

Tax Evasion - The illegal non-payment or under-payment of taxes, usually by making a false declaration or no-declaration to tax authorities.

Edit: September 2009 - I have addressed related points in many more recent posts about tax avoidance on this blog.