Stewart Holdings Ltd. is a Canadian controlled private corporation (CCPC) that has a fiscal period of November 1 to October 31. Stewart Holdings Ltd. has taxable income of $275,000 in the current year and has a policy of always claiming the small business deduction on its tax return each year. Mr. Steve Stewart is the sole shareholder of Stewart Holdings Ltd. Steve has not been too involved in the preparation of the corporate income tax returns in the past neither is aware of the rules under the Income Tax Act, so he has several questions for you about the administrative requirements for income tax purposes for his corporation, Stewart Holdings Ltd.

Mr. Stewart is very worried about the interest income that was excluded from the corporation’s income tax return and he is concerned that this action would be considered tax evasion by Canada Revenue Agency. Briefly explain the difference between tax planning, tax avoidance and tax evasion. In addition, describe the ramifications for a taxpayer who is charged with tax evasion to Mr. Stewart.

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