Private Capital
What Is an Accredited Investor in Canada—and What Can They Invest In?
Accredited investor status can provide access to private companies, private mortgages and other exempt-market opportunities—but eligibility is not the same as suitability.
Many private investment opportunities in Canada are not offered through public stock exchanges or accompanied by a prospectus.
Instead, companies, funds and other issuers may raise capital through the exempt market. Some of these opportunities are available only to investors who meet the legal definition of an accredited investor.
Accredited investor status can provide access to a broader range of investments, including private-company financings, private credit, mortgage investments and certain real estate or private-equity funds.
It does not mean that an investor has been approved by a regulator, that an investment is suitable or that the investor is protected from loss.
What Is an Accredited Investor?
An accredited investor is a person or organization that satisfies one of the criteria established under Canadian securities laws.
The principal definition is found in National Instrument 45-106, Prospectus Exemptions. It includes financial institutions, governments, pension funds, certain investment funds, registered securities professionals and other qualifying entities.
For individual investors, the most commonly used tests relate to income, financial assets or net assets. Accredited investor status is not a licence, examination or certificate. Qualification is based on the investor's actual circumstances when an investment is made.
The Individual Qualification Tests
An individual will generally qualify if at least one of the following tests is satisfied.
Individual Income
Net income before taxes exceeded $200,000 in each of the two most recent calendar years, with a reasonable expectation of exceeding that level in the current year.
Combined Income
Combined net income with a spouse exceeded $300,000 in each of the two most recent calendar years, with a reasonable expectation of exceeding that level in the current year.
Financial Assets
The individual, alone or with a spouse, beneficially owns financial assets with an aggregate realizable value exceeding $1 million, before taxes but net of related liabilities.
Net Assets
The individual, alone or with a spouse, has net assets of at least $5 million.
There are additional categories. Certain corporations and other entities may qualify when they have net assets of at least $5 million, as shown on their most recently prepared financial statements. The complete legal definition should be reviewed for every transaction.
Most individuals purchasing securities under the accredited investor exemption must also complete the prescribed risk-acknowledgement form unless an exception applies.
Accredited investor status is a legal eligibility category—not a certification of expertise and not evidence that an investment is suitable.
Financial Assets and Net Assets Are Not the Same
For accredited investor purposes, financial assets generally include cash, securities, deposits, evidence of deposits and certain insurance contracts.
Financial assets do not generally include real estate. A principal residence, rental properties and other real estate cannot ordinarily be counted toward the $1 million financial-assets threshold. Related liabilities must also be deducted.
The $5 million net-assets test is broader. It considers the fair value of all assets—including real estate and business interests—less all liabilities.
An investor with substantial real estate equity might therefore satisfy the net-assets test without satisfying the financial-assets test. The calculations must be completed honestly and based on actual circumstances at the time of the investment.
What Can an Accredited Investor Invest In?
Accredited investors may be eligible to consider investments that are not generally offered to the public. Availability depends on the issuer, structure, applicable exemption and investor's province.
- private-company shares, preferred shares and convertible securities
- private placements completed by public companies
- private credit and direct business lending
- private mortgages and syndicated mortgage investments
- mortgage investment corporations and mortgage funds
- private-equity and venture-capital funds
- private real estate limited partnerships and development projects
- other exempt-market securities and pooled investment vehicles
Private investments may offer attractive economics or access to specialized strategies, but they can involve limited disclosure, concentrated risks, uncertain valuations and long holding periods.
Understanding Private Mortgage Investments
An investor may lend money secured by a mortgage against real property, either individually or alongside other lenders. Opportunities can include first mortgages, second mortgages, bridge loans, construction and development loans, commercial mortgages and syndicated mortgage investments.
A mortgage registered against real estate is not equivalent to a guaranteed investment. Recovery depends on property value, mortgage priority, loan-to-value ratio, borrower repayment capacity, legal enforceability, enforcement costs and the time required to realize on the security.
Investors may also obtain mortgage exposure through a mortgage investment corporation or private mortgage fund. These vehicles can provide portfolio diversification, but risk varies with underwriting standards, leverage, concentration, management, fees and redemption terms.
In Ontario, regulated mortgage transactions generally need to be arranged through a licensed mortgage brokerage or an exempt party. Investors should receive appropriate disclosure and obtain independent legal and financial advice.
Eligibility Is Not Suitability
Accredited investor status answers a narrow legal question: whether an investor fits a category that may permit an issuer to rely on a prospectus exemption.
It does not determine whether a particular opportunity belongs in that investor's portfolio.
Before investing, consider the potential for total loss, quality of disclosure, management experience, valuation, security and payment priority, concentration, expected holding period, resale restrictions, dilution, fees, conflicts, tax consequences and personal liquidity requirements.
Private securities may be difficult—or impossible—to resell. An investor should be particularly cautious when an opportunity is described as guaranteed, fully secured or low risk solely because it involves real estate or a mortgage.
Questions to Ask Before Investing
- Who is issuing or borrowing the money?
- How will the proceeds be used?
- What information has been independently verified?
- What security and contractual rights will the investor receive?
- Who ranks ahead of the investor if the investment fails?
- How was the valuation established?
- What are the principal risks and conflicts?
- How and when could the investor obtain their money back?
- What fees, commissions and management compensation will be paid?
- Is the person presenting the opportunity appropriately registered, licensed or exempt?
The discipline is the same one an institutional capital provider would apply: understand the asset, the people, the structure, the downside and the realistic path to repayment or liquidity.
Building a Path Over Time
Accredited investor status should result from genuine income generation, saving, business growth and long-term wealth accumulation—not from attempting to manipulate a financial statement or restructure assets solely to fit an exemption.
A responsible path may include growing business or professional income, managing debt, building liquid financial assets, protecting cash flow and coordinating financing, tax, legal and investment planning with qualified professionals.
Through its Private Client services, CFM helps business owners, entrepreneurs, real estate investors and sophisticated clients evaluate financing and capital-structure decisions that support broader financial objectives.
CFM does not certify accredited investors or guarantee that a client will reach any financial threshold. Investment, tax and legal advice should be obtained from appropriately qualified and registered professionals.
Interested in Private Opportunities?
CFM is developing relationships with accredited investors interested in learning about selected private-market and private mortgage opportunities.
If you believe you qualify, you may contact us to register your general areas of interest, learn how private mortgage investments are structured or request inclusion on CFM's opportunity-notification list.
Joining an interest list is not a commitment to invest and does not guarantee access to any opportunity. Eligibility must be confirmed for each transaction. CFM does not represent that every opportunity will be suitable for every investor. Regulated activities will be presented or completed only through appropriately registered, licensed or exempt parties, as required.
Sebastien Charles is the Founder and Managing Director of CFM Financial Consulting Inc. His experience spans entrepreneurship, corporate finance, M&A, capital raising, commercial financing, executive leadership and governance.
This article is provided for general informational purposes only. It is not legal, tax, accounting or investment advice; an offer or solicitation to purchase securities or participate in a mortgage; or a recommendation concerning any investment. Accredited investor definitions, prospectus exemptions and mortgage-investment requirements are technical and may vary by jurisdiction or change over time. Readers should obtain independent advice from qualified legal, tax and financial professionals and verify the registration or licensing status of any person presenting an investment opportunity.
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