In a technical interpretation released on November 20, 2013, the Canada Revenue Agency ("CRA") confirmed that a not-for-profit organization ("NFP") that transfers property to an arm's length creditor in the course of winding up as partial payment for its debts will remain tax-exempt under paragraph 149(1)(l) of the Income Tax Act (Canada). The CRA noted that applicable legislation would require that all of the interests of the NFP's creditors be satisfied in order for it to proceed with a wind-up and thus a distribution made in furtherance of such a requirement would not cause an NFP to lose its tax-exempt status. While this result does not come as a surprise, it serves as welcome confirmation that an NFP can pay its creditors without causing issues with respect to its tax exemption!
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