Alternatives, a small international aid group in Montreal, may become the first casualty in the Harper government’s stepped-up scrutiny of the political activities of Canadian charities.

The charity has worked in developing countries for more than two decades, but was told in the summer it faces revocation of its charitable registration, a move its organizers say would crush the group.

The Canada Revenue Agency began its audit of the organization more than two years ago, but determined only recently that Alternatives’ main work is not charitable at all — and that the agency made an error in 1994 by conferring charitable status.

“They say that they made a mistake 20 years ago when they gave it to us,” executive director Michel Lambert said in an interview with CBC News. “We were a bit shocked.”

Alternatives and 52 other charities have been caught in a net created by the 2012 federal budget, when the Harper government gave the revenue agency millions of dollars to audit the political activities of key charities. The initiative coincided with provocative comments by cabinet ministers painting environmental groups as “radicals” and “money launderers.”

Canada Revenue Agency 20140623

A program to audit the political activities of charities, begun in 2012, may soon claim its first casualty, a Montreal-based group that works in developing countries. (Sean Kilpatrick/Canadian Press)

The first wave of 10 audits targeted environment charities, most of whom oppose the government’s promotion of energy pipelines and the oilsands, but later audit waves expanded to include anti-poverty, human-rights and international aid groups.

Saps scarce resources

Critics say the onerous, expensive and time-consuming audits sap charities of scarce resources and promote “advocacy chill,” as groups fear speaking out to avoid poking the bear.

The government, on the other hand, says it is merely enforcing rules in effect since at least 2003, which forbid a charity from engaging in partisan politics and limit political activities to no more than 10 per cent of resources.

Alternatives, though, has been hit with a more devastating finding: the very basis of its work, sending dollars to Third World countries to help local groups promote health and education, has been declared non-charitable.

A seven-page revenue agency letter from July 14 says, in part, that the group fails the test because it does not itself administer its programs on the ground in the dozen or so countries it helps.

Lambert says his group held an emergency meeting shortly after receiving the letter, and with a lawyer challenged the ruling within the 30-day appeal period, but the tax agency stuck to its guns.

The agency did agree, however, to set out new conditions for the organization to retain its status. Lambert, who says the group is still awaiting the proposed “contract” with the agency, is worried the new ground rules will not be acceptable to Alternatives, which prides itself on empowering Third World partners, not running their programs for them as the tax agency insists.

'If it happens to us, it will happen to every international solidarity organization in Canada.' — Michel Lambert, executive director of Alternatives

“Even if we had the resources, it’s contrary to every ethical value,” Lambert said, adding he is not hopeful of any workable compromise — and the end of Alternatives may be near.

“If it happens to us, it will happen to every international solidarity organization in Canada,” he predicts.

Alternatives is already a shadow of its former self — 38 people worked in the Montreal office in 2005, but now there are just 12, with revenues cut from $8 million to $1.4 million. Much of the revenue decline started in 2009, with the Harper government’s cutting of international aid grants to many such groups.

Lambert notes that Alternatives’ work has passed muster through at least two previous tax agency audits since its founding in 1994, but the agency has now done an about-face.

Only one other charity, Toronto-based Environmental Defence, has come as close to deregistration as Alternatives, but it has been given a reprieve of sorts.

Legal fees soar

Environmental Defence was hit with a deregister letter in July 2012, also for failing to have a proper charitable purpose rather than a technical violation of the 10 per cent rule.

But executive director Tim Gray says the group was given a stay of execution so they could mount a formal appeal with the tax agency, a process begun in October this year and expected to last the winter. In the meantime, the group has spent more than $200,000 on staff and legal fees.

“We probably will go to court” if the formal appeal fails, Gray said in an interview, noting that the agency has accepted the group’s charitable purposes since at least 2003, when Environmental Defence updated its registration during a previous audit with the tax agency.

“If our organization lost its charitable number it would lose its ability to raise funds — it would actually be shut down,” he said from Toronto.

“Our concern is that the things that we are doing are widely undertaken by charities in Canada. And if we were found not to be able to undertake these activities then it would be a real stretch to understand how any organization with a charitable number in Canada would be able to undertake this public-policy work.”

Canada Revenue Agency spokesman Philippe Brideau says the agency cannot comment on specific cases because of confidentiality provisions in the Income Tax Act.

New Democrat MP Murray Rankin, the party’s critic for the tax agency, said the political activity audit program “is essentially a chill, like McCarthyism in the United States, that we are experiencing in the charity sector.”

“People are afraid to come forward because if they do they fear they will bring the heat and the wrath of the CRA down on them,” he said from his riding in Victoria.

“And it's not the public servants that we are concerned about. It is the ministerial direction that seems to be at issue here.”

Revenue Minister Kerry-Lynne Findlay has said repeatedly that public servants make their own decisions about audits free from any political interference or input from her office.

So far, the Canada Revenue Agency has identified 53 of the 60 charities it intends to audit for political activities; 44 such audits are either still underway or closed. No group’s registration has been revoked under the new program, though four “education” letters have been issued to groups that violated the rules.

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With files from Julie Van Dusen, James Fitz-Morris