Mark Feldstein & Associates Tax Accounting Blog

Revenue Canada uses Xenon Spider Software to find non-filers

Websites around the world are getting new computerized visitors among the google and yahoo web spiders. Tax authorities are cracking down on suspected tax cheats through sophisticated web crawling programs to monitor transactions on auction sites, and track operators of online shops, poker and adult entertainment sites along with many other websites. The Xenon program (a reference to the super-bright auto headlights that light up dark places) originated in the Netherland in 2004 by the Dutch equivalent of the IRS. Since then, it has been expanded and enhanced by an international group of tax authorities in Austria, Denmark, Britain and Canada.

Xenon is primarily a spider that downloads a web page, then traverses its links and downloads those as well, ad infinitum. In this respect, the spider can create huge datasets of web material. It is not clear how effective Xenon has been in generating tax leads. CRA confirmed participation in the use of the Xenon software.

Xenon is smart about link selection and context and uses a slow search paradigm. Google might hit thousands of websites in a second. With the Xenon program, it may take minutes, hours or even days to do a slow search. The slow search prevents the crawler from creating excessive traffic on a website, or drawing attention in the sites’ server logs. The spider can also be configured and trained to look at particular economic niches. This would be useful for compiling lists of businesses in industries that traditionally have high rates of non-filing. For example, weight control yields a tremendous volume of hits which in turn would provide CRA a list of companies that sell services or products.

Xenon’s extraction module interfaces with national databases containing information like street and city names. The software will use the data to automatically identify mailing addresses and other identity information present on the websites it has crawled. The program then matches in bulk to national tax records. If you are on the web including Facebook, Twitter, Linkedin or any other sites with your name listed it maybe possible, with the Xenon software, for CRA to find you.

If you are in an industry that historically has been offside with GST, CRA can use the software to locate you. For example, some physiotherapists charge GST while others do not (excluding billings to OHIP). All CRA has to do is use the spider program to develop a database of physiotherapists across the country and compare the results to GST and tax filings. CRA’s lead will come right from the physiotherapists own website. In other words, they will use your own website against you. It requires nothing more for them to use certain key words to compile a list of individual and companies that may be offside.

I am anticipating with newer versions of Spider, CRA will have the ability to easily find non-filers wherever they are. If CRA finds an individual or a company that has not filed, the penalties can be excessive. Why wait until CRA finds you first. By applying under the voluntary disclosure program before a CRA investigation begins, then there will be no penalties or prosecution. The taxpayer would only be responsible for the income taxes and the interest.