Can I change my structure once it is in place?

August 5, 2015

In a word, no. Once a Structured Settlement is put in place, the format of dates of the payments cannot be changed. Canada Revenue Agency (CRA) requires this, in order for the payments to be tax free.

The document that governs this is Income Tax Interpretation Bulletin IT365R2.

This IT Bulletin requires that structure payments be “non-assignable, non-commutable, and non-transferable”. The structure payments must be “irrevocably directed” to the intended recipient.

This differs from structures in the United States, which can be fully or partially sold to “factoring companies”.  This is not possible in Canada, because of the irrevocable payment direction and the other CRA requirements.

The purpose of the strict CRA requirements is to reduce the possibility that settlement funds might be misspent or misinvested, and to ensure that injured plaintiffs receive the maximum benefit possible (by receiving much more over time – and all tax-free - than the amount placed in the structure).

Simply put, the trade-off that CRA requires in order to allow guaranteed, tax-free payments to flow to injured parties in Canada, is that once the structured settlement is set up, it is “set in stone”.