Some Canadian charities are feeling a new degree of chill, as a Liberal government election promise to ease restrictions on their political activities appears to be on ice more than two years later.

"I'm worried," said Tim Gray, executive director of Environmental Defence, who — along with representatives of 13 other environmental charities — met this week with Finance Minister Bill Morneau to press for action.

Gray said the group came away from the conversation with no commitments or timeline for changes, and a sense that the issue is not a priority for Morneau.

"I am worried that the government will not act on its promise to protect charities," Gray said in an interview.

"This will expose thousands of organizations to renewed harassment and squash their ability to make better public policy in Canada."

Some charities who met with Finance Minister Bill Morneau this week say they're worried that promised reforms to remove restrictions on political activities may not happen. (Darryl Dyck/Canadian Press)

Starting in 2012, five dozen charities were targeted by a controversial Canada Revenue Agency (CRA) program to determine whether they carried out too many political activities. Spending more than 10 per cent of an organization's resources on such activities can trigger revocation of charitable status — but definitions of what qualifies as 'political' work are fuzzy.

Critics said the $13.4-million, five-year program, launched by Stephen Harper's Conservative government and initially focused on environmental groups, created an "advocacy chill" as many charities censored their own public comments to avoid inviting an audit.

'Political harassment'

Justin Trudeau's Liberals promised in the 2015 federal election campaign to end the "political harassment" of charities by "clarifying the rules governing 'political activity,' with an understanding that charities make an important contribution to public debate and public policy."

And a Liberal-appointed panel issued a report a year ago calling for changes to the Income Tax Act to delete any reference to the political activities of charities.

Instead, the legislation should be rewritten "to explicitly allow charities to fully engage, without limitation, in non-partisan public policy dialogue and development," the panel recommended.

Partisan activities, such as supporting candidates or parties, should remain banned, said the report — echoing a view widely held by charities themselves.

The day she released the report, National Revenue Minister Diane Lebouthillier ordered the CRA to suspend the remaining 12 audits in the program — including those of seven groups already on notice that they were going to lose their charitable status. Among the seven were Environmental Defence and Canada Without Poverty.

Most rules are literally from 19th century England - From a briefing by environmental charities for Finance Minister Bill Morneau

Lebouthillier's office suggested at the time the government's response to the report could be expected by summer 2017, but there's been a year of silence since.

The 2018 budget in late February dashed charities' hopes again, with the document indicating only that the government would respond "in the coming months."

A CRA spokesperson told CBC News the issue remains under review by Morneau and Lebouthillier. "We cannot provide further details at this time," Etienne Biram said in an email.

Outdated rules

Gray's group of environmental charities gave Morneau a briefing note at their April 17 meeting in Ottawa that argued "the laws governing charities are outdated."

"Most rules are literally from 19th century England. These rules hamper innovation from the sector," says the note. "For example, if the YMCA were to ask for charitable status today, they would most likely be turned down."

Meanwhile, federal lawyers defended the status quo in a recent submission to the Ontario Superior Court of Justice, prior to an April 23 hearing on a Charter of Rights and Freedoms challenge.

Tim Gray, executive director of Environmental Defence, participated in the April 17 meeting with Morneau. His group is under threat of losing its charitable registration because of its political activities. (Environmental Defence)

Canada Without Poverty (CWP), a small Ottawa-based charity, launched that constitutional challenge of the Income Tax Act. It argues that the 10 per cent rule for charities violates the charter's freedom-of-expression guarantee.

Federal lawyers, however, say it's all about money.

"The true nature of its application is a demand for financial support from the state," says Ottawa's response to CWP's challenge, referring to the charity's ability to attract donations by issuing tax receipts.

"Freedom of expression does not require the government to subsidize Canada Without Poverty's activities, and this application should therefore be dismissed."

The federal government is also asking for legal costs.

The federal factum adds that CWP could choose to operate as a not-for-profit group, unable to issue tax receipts but free to engage in unlimited political activity.

An arbitrary legal limit

CWP was notified Oct. 27, 2016, that its charitable registration would be revoked because a CRA audit had found most of its activities to be political. The revocation is on hold during the charter challenge.

In a rebuttal of the federal arguments, CWP argues the law is arbitrary, since it allows the group to make unlimited direct submissions to government – at Parliamentary committees, for example – but restricts its ability to engage Canadians on poverty issues.

A charter challenge of Canada's Income Tax Act goes to court next week. Leilani Farha, executive director of Canada Without Poverty, argues restrictions on the political activities of charities are a violation of freedom of expression. (cdp-hrc.uottawa.ca)

And it argues that no one should be asked to relinquish tax benefits in order to exercise a charter right, saying a government could use the same argument to impose speech restrictions on Canadians receiving Employment Insurance payments or child tax credits.

Canada Without Poverty's case is being argued by the firm of McCarthy Tetrault LLP on a pro bono basis.

There are more than 80,000 charities in Canada registered with the CRA, though only about three per cent report undertaking any political activities.

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