CRA indicates that legitimate debt financing of an NPO cooperative by its members can be consistent with the s. 149(1)(l) conditions

Regarding whether the receipt of loans by a Quebec cooperative (a mooted NPO) from members (as well as from non-members) satisfied the requirement in s. 149(1)(l) that “no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder,” CRA stated that such an interest payment “should not, in and of itself, prevent the Co-operative from qualifying as a tax-exempt NPO, provided the financing is legitimate, is not a scheme to distribute surplus funds to its members, furthers the Co-operative's exempt purposes, and the interest rate is reasonable.”

Regarding the payment of “interest” on any preferred shares held by members, this would constitute in substance a distribution of the cooperative’s profits to them and, thus, be offside – and indeed, the mere issuance by it of such shares would put it offside even if no such interest was paid.

Neal Armstrong. Summary of 7 January 2025 External T.I. 2022-0945291E5 F under s. 149(1)(l).