“Accredited investor” sounds like a club you join. It isn’t — it’s a line the securities regulators draw, and which side of it you’re on decides what you’re allowed to invest in. Here’s what it actually means, how you end up on the right side of the line, and why you might want to be.
What it actually is
Normally, a company selling securities to the public has to file a prospectus — a detailed, regulated disclosure document. That’s expensive, so the rules carve out exemptions. The biggest is the accredited investor exemption under National Instrument 45-106: a company can sell privately, with no prospectus, to people who qualify as accredited. The logic is that these investors can either afford to lose the money or are sophisticated enough to fend for themselves — so they don’t need the full protection the public gets.
Do you qualify? The Canadian tests
For individuals, the most common ways to qualify are financial assets (cash and securities, net of related liabilities) worth more than $1 million; net income before taxes over $200,000 (or $300,000 combined with a spouse) in each of the last two years, with a reasonable expectation of the same; or net assets of at least $5 million. Corporations, trusts, and other entities with net assets of at least $5 million also qualify, as do registered financial firms. The rules are set nationally by the Canadian Securities Administrators in National Instrument 45-106, and each test has a paragraph number that will appear on any subscription document you are asked to sign.
| NI 45-106 | Test | Threshold | Risk acknowledgement (45-106F9)? |
|---|---|---|---|
| (j) | Financial assets, alone or with a spouse, net of related liabilities | More than $1,000,000 | Yes |
| (k) | Net income before taxes in each of the two most recent calendar years, with a reasonable expectation of the same this year | Over $200,000, or $300,000 with a spouse | Yes |
| (l) | Net assets, alone or with a spouse — your home counts here | At least $5,000,000 | Yes |
| (m) | A person other than an individual or investment fund, on its most recent financial statements | Net assets of at least $5,000,000 | No |
The distinction in the last column catches people out. An individual relying on the income test signs the prescribed risk acknowledgement; an entity never does. If you are on the other side of this — raising the money rather than investing it — the mechanics of collecting and keeping that evidence are set out in accredited investor verification under NI 45-106.
How you “become” one
This is where people get confused: there’s no application, no regulator to approve you, and no certificate you carry around. You become accredited simply by meeting one of the tests. When you go to invest in a private (exempt) offering, you confirm your status by completing an investor questionnaire, and in some cases signing a prescribed risk acknowledgement form. If your finances cross a threshold, you’re accredited for that purpose; if they don’t, you’re not. (On the other side of that transaction, the company has to verify your status to rely on the exemption.)
Why you’d want to be one
Being accredited unlocks the exempt market — the world of investments that aren’t offered to the general public: private placements in growing companies, private equity and venture funds, real-estate syndications, pre-IPO rounds, and various alternative funds. For investors looking to diversify beyond public stocks and bonds, or to get in earlier on private opportunities, the status is the key to the door.
The trade-off — read this part
The status is as much a warning as a privilege. Exempt-market investments are less regulated, often illiquid (you may not be able to sell when you want), higher-risk, and backed by far thinner disclosure than a public company provides. The rules let you in precisely because they assume you can afford to lose the money. Being allowed to make an investment is not the same as it being a good one — this is legal information, not investment advice, and whether any specific private deal makes sense is a question for you and a qualified advisor.
If you’re raising money from accredited investors, or being asked to confirm your own status, the exemption rules are worth getting right — and if you are on the raising side, several provinces will pay your investors a tax credit for the same cheque, which is covered in our guide to funding a startup in Canada. See also our page on Canadian securities law, or the accredited investor verification side of a private financing.
Common questions
What is an accredited investor in Canada?
An accredited investor is a person or entity that meets one of the categories in National Instrument 45-106. For individuals the common tests are financial assets over $1,000,000 net of related liabilities, net income before taxes over $200,000 (or $300,000 with a spouse) in each of the two most recent calendar years, or net assets of at least $5,000,000.
Does my house count toward accredited investor status?
Under the financial assets test in paragraph (j) it does not — that test counts cash and securities net of related liabilities. Under the net assets test in paragraph (l) it does, which is why an owner who fails the financial assets test sometimes still qualifies on net assets of $5,000,000 or more.
How do I become an accredited investor?
There is no application and no regulator approves you. You become accredited by meeting one of the tests, and you confirm it when you invest by completing the issuer's investor questionnaire and, for individuals relying on paragraphs (j), (k) or (l), signing the prescribed Form 45-106F9 risk acknowledgement.
Do I need a certificate proving I am an accredited investor?
No. Canada has no accredited investor certificate or registry. The evidence lives in the subscription documents for each investment — the questionnaire and, where required, the risk acknowledgement form.
When is Form 45-106F9 required?
It is required for an individual relying on the $1,000,000 financial assets test, the $200,000 / $300,000 income test, or the $5,000,000 net assets test. An individual relying on the $5,000,000 financial assets category does not sign one, and entities never do.
What happens if my income drops below the threshold?
Status is tested at the time of each investment, not once for life. If your circumstances change you may qualify for one offering and not the next, which is why issuers re-collect the questionnaire for each distribution rather than relying on an old one.
Is being an accredited investor actually a good thing?
It opens access to private placements that are not available to the general public, but it also removes the protection of a prospectus. You are accepting that you can evaluate the investment, and absorb the loss, without the disclosure the public market requires. That trade is the whole point of the exemption.
I am raising money rather than investing. What do I need?
You need the exemption documented properly: the right questionnaire, the risk acknowledgement where it applies, and a report of exempt distribution on Form 45-106F1 filed within 10 days of the distribution. See accredited investor verification and how to raise money from accredited investors.