Not sure about Canadian law.
In the U.S., the First Amendment prevents the government from establishing religion, but also prevents it from abridging the free exercise of religion. The courts have pretty consistently held that students have virtually-complete freedom to wear clothing with religious statements, give speeches/do projects about religious themes, et al, because of the free exercise clause.
A lot of times, school admins fear they're going to get in trouble because of "separation of church and state" concerns, but the Constitution is pretty clear on what's allowed and what's not. As a public school teacher, I cannot evangelize my students nor can I wear overtly religious shirts because that would, as a state actor, be "establishing" religion. But I cannot prevent my students from doing the same.
So, if this happened in the U.S., the principal & school board might find themselves on the losing end of a First Amendment suit and out a few thousand bucks in fines. But I'm not as certain about Canadian law -- which is much more of a common law-based system with a *very* loose Constitution/Declaration of Rights & Freedoms.