OTTAWA—The Liberal government is suspending its ongoing tax audits of charities for political activities in the wake of a panel report that urges Ottawa to give charities more freedom to speak out on public policy.

National Revenue Minister Diane Lebouthillier announced the move Thursday, ending the Conservative-imposed crackdown on charitable activities perceived as political.

Lebouthillier cited the report’s findings that the federal audits have created a “pervasive chill” on the policy and advocacy work of charities. She said outstanding audits would be suspended until the government responds to the panel’s findings.

In a report released Thursday, a government-appointed panel called on the Canada Revenue Agency in the short term to relax its enforcement of “confusing” regulations that govern how charities engage in political advocacy.

And it’s recommending longer-term legislative fixes to modernize the rules and give broader latitude to charities to speak out.

The five-member panel said the prohibition on “partisan” political activities should remain in place. But it said the CRA should focus on charitable purposes, rather than activities.

“In this approach, public policy dialogue and development would be allowed without restriction, provided that it is subordinate to the charity’s approved purposes and is non-partisan in nature,” the report said.

Those activities would include research, opinions, advocacy, mobilizing support, representation and convening discussions.

That change would provide clarity and enable charities to “more meaningfully contribute to public policy reform and the democratic process.”

The findings were cheered by the charitable sector, which has been wary of engaging in political advocacy and engagement, especially after 2012 when the former Conservative government gave the CRA extra resources to go after charities.

Under that initiative, the CRA launched 54 audits, sending a chill through the charitable sector and prompting accusations that the Conservatives were on a political witch hunt.

Leilani Farha, executive director of Canada Without Poverty, hailed the change as a “good day for democracy.”

“The effect of being under audit for so long, for a small organization like ours, is stressful,” Farha said, describing how her organization was forced to spend “thousands of dollars” on legal fees when its books were examined by the taxman.

Her charity launched a court case against the federal government in an effort to force a change to the Income Tax Act so that the CRA couldn’t audit groups like hers for “political activities.”

“The idea that we might not be able continue to operate and to offer the voice of poor people into the public domain was very distressing,” she said of the audit.

There were “little stresses of money and staff time and bigger stresses of . . . ‘what kind of a country are we living in? Is this the democracy that we want?’ ” she said.

That’s the very point the panel report seized on, saying that charities play a critical role in public discourse by offering “innovative solutions” and diverse viewpoints.

“This is particularly valuable in an era of complex social and environmental challenges and constrained government budgets, where all informed perspectives and ideas are vital,” the report said.

Yet while charities have unique insights to offer on the policy challenges of the day, “the legal rules around their participation are blurry enough to make joining the conversation a challenge,” the panel declared.

And because of the confusion around the rules, the current crackdown and worries about losing their charitable status many charities view political activities as “too risky to carry out and engage in self-censorship.”

The panel makes four recommendations that it says will “improve the quality of public policy dialogue and development in Canada, while reducing administrative complexity and cost for both the sector and its regulator.”

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Two of the recommendations are aimed at Canada Revenue Agency policy and are meant to be implemented quickly to allow charities to feel the impact of the more relaxed regulation of their activities.

The panel also recommends two longer term fixes it said will require legislative changes — and more consultation.

The government-appointed panel also said the requirement that charitable materials reflect all sides of an issue is “unreasonable and unnecessary.” That should be replaced, it says, by the requirement that materials are fact-based.

Other charities applauded the move as well, including the David Suzuki Foundation, which also found itself the subject of a CRA audit.

“The ability of Canadian charities to speak out on issues of public policy and legislation is critical to a healthy democracy,” Peter Robinson, CEO of the foundation, said in a news release.

Tim Gray, executive director of Environmental Defence, welcomed the panel’s recommendations.

“It shows that the panel listened to the 20,000 Canadians and many organizations who participated in the fall 2016 consultations and is asking the government to move ahead to protect Canadians’ ability to be involved in advocating for change.”

New Democrat MP Nathan Cullen said he is happy to see an end to what he called the Conservative “witch hunt.” But he urged the government to bring forward legislative changes quickly, saying charities are now operating in limbo with the confusing laws still on the books.

“If they’re going to change the rules . . . that govern charities, then they can change the laws, but they can’t simply stop auditing anybody because they say so,” Cullen said.

The debate around the “political activities” of charities dates back decades with much confusion around “what they can say, how much and to whom,” the report notes.

The current rules allowed a limited amount of non-partisan political activities in support of their charitable purposes, but the statute does not in a clear way define any of the key terms, such as charitable purpose or political activities, the report said.

“This problem of terminology lies at the root of much of the confusion and uncertainty that exists through the charitable sector,” the report said.

The Canada Revenue Agency has issued a series of advisories over the years in an attempt to bring clarity to the issue with little success.

“Problems with the legislative framework and its administration have left the sector and its regulator stuck on a merry-go-round of consultation, clarification and concern for nearly four decades,” the report said.

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