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Canadian author Margaret Atwood in August, 2013.Fernando Morales/The Globe and Mail

The Canada Revenue Agency has launched a political-activities audit of Pen Canada, a small charity promoting freedom of expression that has criticized the Harper government in the past.

Two tax auditors showed up Monday morning at the tiny Toronto offices of Pen Canada, asking to see a wide range of internal documents.

Pen Canada's president, Philip Slayton, says the tax agency gave notice of the audit two or three months ago, and that the group is "fully co-operating."

Pen Canada represents more than 1,000 writers and supporters, including Canadian literary luminaries Margaret Atwood and Yann Martel, and presses for freedom of expression at home and abroad.

The group has been highly critical of the Harper government in recent years for the muzzling of scientists on the public payroll, and for alleged spying on Canadian citizens in concert with U.S. eavesdropping agencies.

This latest political-activity audit is among more than 50 that the agency has begun since 2012, which some critics have said creates an "advocacy chill" as charities self-censor for fear of losing their ability to raise funds through tax-deductible donations.

The wave of audits was announced by the federal government in the 2012 budget, and some groups have been under threat of losing their charitable status for more than two years. The list of targets includes Amnesty International Canada, the Canadian Centre for Policy Alternatives, Canada Without Poverty, and the David Suzuki Foundation.

The Canada Revenue Agency says its work is conducted without political direction from government.

"The process for identifying which charities will be audited, for any reason, is handled by the (charities) directorate itself and is not subject to political direction," the director general of the directorate, Cathy Hawara, told a Canadian Bar Association group in May.

Spokesman Philippe Brideau said Monday that "the confidentiality provisions of the Income Tax Act prevent the CRA from commenting on specific cases."

Pen Canada, with only one or two full-time employees in recent years, officially reported just $237,000 in expenses for 2011-12 in its latest filing with CRA, none of it going to political activities.

Charities are permitted to spend up to 10 per cent of their resources on political activities, based on a 2003 government policy, though they cannot endorse any party or candidate.

Slayton says Pen Canada has abided by the rules, but there are grey areas.

"They (the rules) are vaguely formulated," he said in an interview from Port Medway, on Nova Scotia's south shore. "There's a lot of room for interpretation. We'll see what the CRA thinks."

An investigation by The Canadian Press has found numerous charities targeted with political-activity audits, from environment to international aid and human-rights groups. Many say they are being slowly drained of cash for legal and other costs, and fear speaking out.

Some have been critical of the Harper government's policies, especially regarding pipelines and the oil sands, and have been labelled "radical" and "money launderers" by senior Conservative cabinet ministers.

The agency has budgeted at least $13 million for these special audits, up from $8 million initially, and is making them a permanent feature of its work.

"This is taking up a lot of time," Slayton said of the process, which involved assembling large binders of internal documents before the two auditors arrived Monday.

The auditors, one from Kitchener, Ont., the other from Ottawa, are spending three days in Pen Canada's offices, while also doing a basic financial audit of the 2011-12 and 2012-2013 fiscal years. Their analysis of the information is likely to take many months, or even a year or more.

"I refuse to let it have a chilling effect on us," said Slayton. "We are not going to have some kind of fear — about having our charitable status questioned by authorities — stop us speaking out on issues."

Slayton added that a "major" Bay Street legal firm has agreed to provide pro bono services if Pen Canada requires them.

Some charities contacted by The Canadian Press say they are considering abuse-of-power lawsuits or even Charter of Rights-based challenges, perhaps jointly with other groups.

Last week, the NDP called for a independent probe into the current wave of political-activity audits, overseen by a retired judge or even a former CRA official, to determine whether the agency was itself becoming a political tool of the government to silence critics.

Slayton said the wave of audits raises the question of whether charitable status is even worth having.

"If it means you have to live in fear of the revenue authorities, and if it means that there are things you want to say, you feel you should say, but you feel you cannot say because of the rules, well then, what price charitable registration?"

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