A small environmental group opposed to Liberal pipeline policies is still under threat by the Canada Revenue Agency – almost five years after getting into trouble with the taxman for opposing Conservative pipeline policies.

The tax agency has notified Environmental Defence Canada Inc. in writing that it plans to revoke its charitable status because the group is too political — a contravention of current rules for charities.

So far the Toronto charity's appeal of that decision has not been successful, even after spending up to $500,000 in legal and other fees to deal with a political-activity audit that begin in early 2012.

"They haven't budged in any way," said executive director Tim Gray, referring to a letter received late summer from CRA's appeals office. "We will reply by a deadline in early January."

The group was caught up in the Conservative government's $13.4-million political-activity audit program targeting 60 charities. That program was launched by the 2012 budget and later expanded.

Revenue Minister Diane Lebouthillier has said she will not call off auditors looking into the political activities of charities. (Chris Wattie/Reuters)

Environmental Defence was in the first wave of charities audited — most of them environmental groups — after several cabinet ministers publicly vilified environmentalists as "terrorists" and "money launderers" for opposing the Conservative government's energy and pipelines policies.

Formally complained

EthicalOil.org, a website in support of the oil patch, also formally complained to CRA about Environmental Defence's anti-pipeline work, saying the group far exceeded the maximum 10 per cent of resources that charities are allowed to spend on political activities.

Fast forward to 2016, and Environmental Defence is still vocally opposing oil pipelines, this time the two projects — Kinder Morgan and Line 3 — that were given the green light last week by the Liberal government.

Party leader Justin Trudeau campaigned during last year's election to end CRA's political-activity program and rewrite the rules.

"We will allow charities to do their work on behalf of Canadians free from political harassment, and will modernize the rules governing the charitable and not-for-profit sectors," the Liberal campaign book said.

"This will include clarifying the rules governing 'political activity,' with an understanding that charities make an important contribution to public debate and public policy."

It seems odd to allow these things to proceed. - Tim Gray, executive-director of Environmental Defence

The new Liberal government in January curtailed the 60-audit program, cancelling the last six that were scheduled. But all audits already underway were allowed to continue, and Environmental Defence is among five charities now under notice they will lose their charitable status unless their appeals are successful.

"It seems odd to allow these things to proceed," said Gray, noting the Liberal government is currently consulting on changes to rules governing activities for charities.

"Why is this continuing? It really should just be put to bed."

Another group under threat of losing its charitable registration filed a constitutional challenge of the law in August, saying the curbs on political activity are an unreasonable limit on freedom of expression.

Declined comment

Ottawa-based Canada Without Poverty was told by CRA auditors last year that 98.5 per cent of their work is political.

A spokesman for the tax agency, David Walters, declined comment on the status of individual audits, citing the confidentiality provisions of the Income Tax Act.

The charitable sector was caught by surprise when the new Liberal government announced it would not halt political-activity audits already underway.

The minister, Diane Lebouthillier, said earlier this year that "the independence of the Charity Directorate's oversight role for charities is a fundamental principle that must be protected. … I cannot and will not play a role in the selection of charity audits or in the decisions relating to the outcomes of those audits."

Lebouthillier launched a formal consultation process this fall to help rewrite charity law, including an online component and in-person sessions in seven major cities. The consultation ends Dec. 14.

Gray says there are some hopeful signs. CRA appeals officials met with Environmental Defence in April and again last month for direct talks. Previously, communications with the agency were in writing only.

In the meantime, the group's nine-page submission to the consultations, submitted Nov. 22, calls for a truce:

"In light of this consultation and in order for organizations to participate freely in this process, we request that all political activities audits currently underway be suspended until the government's new legislative framework is in place, including a suspension of the CRA's power to revoke an organization's charitable status."

In the year ending March 31, Environment Defence reported revenues of $3.1 million, of which they issued receipts for donations worth $584,000. About $150,000 was spent on political activities, or about five per cent of all revenues, according to the filing.

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