A Toronto-based foundation that distributes about $2 million a year mostly to children's causes says it has been targeted by the Canada Revenue Agency — and is about to lose its charitable registration.

JoAnne Korten, executive director of the Giving Tree Foundation of Canada, said the tax agency issued a notice last month warning the foundation it would be stripped of its status on May 14, raising questions about the fate of the $58 million the foundation has in the bank.

"I was very shocked to have come into this agonizing situation," said Korten, who joined the foundation last July. "We have done nothing wrong."

When the foundation is no longer a registered charity, donations received will not be tax-deductible.

Korten said the foundation has been under a cloud since receiving letters over the last six months from Canada Revenue Agency officials raising objections to the types of donations it accepts.

"Our entire program is at risk of being shut down," she said. "After several requests, the CRA has not provided any opportunity to meet and discuss the issue."

Quickly raised millions

The group has a relationship with EquiGenesis Corp., a company that designed a complicated donation tax strategy that helped the Giving Tree Foundation quickly raise millions of dollars after it was re-organized five years ago.

EquiGenesis successfully passed CRA audits in 2005 and 2006, but in recent years has again come under scrutiny from tax auditors who are raising questions about its tax donation strategy.

Korten said her group's charitable registration troubles are likely related to the EquiGenesis file. "That's probably why we're on their radar," she said.

The foundation stopped accepting all donations when it learned about CRA's concerns, she said, and is distributing only its investment income to more than 40 charitable partners, including Cystic Fibrosis Canada, Alberta Children's Hospital Foundation, Queen's University and Special Olympics Canada.

'I am satisfied it meets with the legal requirements.' - Vern Krishna, tax law expert

Giving Tree still has a 90-day appeal period, and may have other legal options even after it loses its charitable status.

The group hired tax law expert Vern Krishna, a professor at the University of Ottawa law school, to review all its files, as well as its relationship with EquiGenesis. Krishna said the foundation complies with the law, as does the EquiGenesis tax donation strategy.

"I am satisfied that it meets with the legal requirements stipulated in the Income Tax Act," he said in an interview, adding that it also conforms to the spirit and intent of the legislation.

Krishna, who is providing Giving Tree with an affidavit, said EquiGenesis will be in the Tax Court of Canada later this year to defend its donation strategy.

Asked for comment, the president and founder of EquiGenesis, Ken Gordon, said in an email: "We are very much confused by the CRA's rationale. The issues will, however, be before the courts in September and we hope to get more clarity through that process."

Concerns about CRA seizure

The EquiGenesis website said the company has generated $205 million in contributions to Canadian non-profit organizations and charities since 2003.

Korten, who works as a volunteer and has no staff on the payroll, said she's concerned about the government scooping up the foundation's $58 million in long-term investments.

"Do you think CRA is going to give that to any children's charities?" she asked.

Canada Revenue Agency

The Canada Revenue Agency has also launched a court challenge of a related company, EquiGenesis Group, for its tax donation strategy. (Kady O'Malley/CBC )

The Giving Tree Foundation was originally incorporated as the Ottawa College of Jewish Studies in 2005 to promote the study of Judaism, but changed its name and purpose in 2009 "to receive and maintain a fund or funds and to apply all or part of the principal and income therefrom … to charitable organizations." The predecessor organization passed an audit in early 2009, but the Giving Tree has not been audited.

Korten said donors indicate which charities they want their dollars to go to.

The Canada Revenue Agency has come under fire in recent years for its political-activity audits of Canadian charities, a $13.4-million program that launched in 2012 and has involved about 60 charities.

The agency was asked for a comment but said it could not respond due to confidentiality provisions of the Income Tax Act.

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