Couple of things to add, hopefully to help clarify and provide context, as a Canadian who lived not so far away from where that school is:
First, I got the impression from the article that the "Rainbow Day" wasn't about anything specifically to do with sexuality or gender or sex, but about diversity in general: the students were asked to wear shirts in their favourite colours (as a PP pointed out, shirts in various colours are trotted out for all sorts of occasions, so on this occasion, they wanted all the shirts together, I guess). The undertone I read in the article is, "Oh dear, some in the Muslim community appear to have thought that we meant the Pride rainbow. We should have communicated better," alongside considerable discomfort that perhaps this means that not everyone in that community approves of Pride...when surely all nice people everywhere agree about every "progressive" point... (as other PPs have pointed out). (N.B. I really don't like the term "X community", as it assumes a monolith that rarely exists.)
Second, while I take the point that being singled out for a characteristic, even in ostensible celebration, can have the opposite effect to making someone feel included (I speak from personal experience), there is a long tradition of speaking about Canada as a "cultural mosaic" (as opposed to the American "cultural melting pot"), and of holding festivals and celebratory days for just about any heritage or characteristic one could think of. The idea seems to be that by learning about each other's differences, one will learn to be appreciative and not fearful (the problem with this, of course, is that this model doesn't account for what happens when features of two cultures are mutually incompatible). Specifically, London (Canada) is a fairly large city that used to have a multicultural festival involving many of the various cultural heritage centres in the city putting on food, clothing, music, art etc. displays, and everyone travelled around eating each other's food and collecting stamps in a "passport" for the day. Many current teachers, and the parents of many children, will have taken part in this festival. Of course by itself it didn't resolve culture clashes, but it is still fondly remembered. So in this context, wanting to celebrate diversity by naïvely highlighting differences and saying "but that's ok" is at least consistent with specific local practice.
Third, the area within which this school is, is the more socioeconomically deprived region of the city (and is where many of the Syrian refugees have settled), and there was a huge case in the news last year in which a Muslim family was murdered in this city (although in a different area). It was the first mass killing ever in the city, and as I understand it, feelings around Islamophobia are still very raw. The uncomfortable undercurrent of the article will have something to do with that as well, and with the self-image of the generous kind welcoming Canadian not always being reflected in the reality of the situation.
And fourth, about the "New Canadians" thing: basically, if you're not Indigenous, you're a "New Canadian", even if your ancestors came over in the 16th century. So it's not an insult. In fact, the article seemed to be falling over itself wanting to make clear that the Syrian refugees were now considered Canadian, which is why it gets tangled in knots differentiating among really brand-new, formerly-Syrian-refugee-New-Canadians, and also-of-Middle-Eastern-heritage-but-second-or-third-generation-New Canadians. As another PP has said, asking where someone is from is not a loaded question in Canada like it can be here (at least not in an urban context in Ontario), because basically the assumption is that everyone is an immigrant at some point, and talking about when/from whence one's family arrived in Canada is a perfectly normal conversation starter in many situations.