An accredited investor is a person or entity Canadian securities law treats as sophisticated or wealthy enough to buy securities without the protection of a prospectus, qualifying through any one of several income, asset or entity-type tests in National Instrument 45-106 — and Ontario runs part of its own parallel version of that list under its own statute.
The Prospectus Exemptions instrument sets out the individual tests in its accredited investor definition. Two run on financial assets: (j) an individual who, alone or with a spouse, “beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000”; and (j.1) an individual whose financial assets alone exceed $5,000,000. A third runs on income: (k) an individual “whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years”, or combined with a spouse “exceeded $300,000” in each of those years, “and who, in either case, reasonably expects to exceed that net income level in the current calendar year.” A fourth runs on net worth: (l) net assets, alone or with a spouse, of at least $5,000,000. Entities other than investment funds qualify separately under (m) with net assets of at least $5,000,000. National Instrument 45-106 is the source instrument; the consolidated text itself is a PDF, so the rule here is attributed to the instrument rather than linked directly.
Not every paragraph applies the same way nationally: the instrument records that in Ontario several of these categories come instead from Ontario’s own Securities Act, worth checking before relying on the national text there.
Accredited investor is also a materially higher bar than the separate “eligible investor” test used for the offering memorandum exemption. Investor-education material from the Ontario Securities Commission sets the eligible-investor thresholds far lower: net assets exceeding $400,000, net income before tax exceeding $75,000 in the previous two years, or combined net income exceeding $125,000 in the previous two years. The two categories exist side by side precisely because most investors clear the eligible-investor bar long before they clear the accredited-investor one.
A retired executive holds $1,300,000 in a non-registered investment account with no debt against it, and separately owns a $2,100,000 house carrying a $900,000 mortgage. The investment account alone clears the $1,000,000 financial-assets threshold in test (j) — the house does not count toward it, because real estate is not a financial asset for this test, even though its net equity is actually larger than the account. A colleague with a $700,000 RRSP and a $150,000 salary clears none of the accredited-investor tests, but does clear the lower eligible-investor bar on the $75,000 net-income test, which is what lets that colleague still participate in an offering memorandum raise the accredited-investor exemption alone would have shut out.
See also: Exempt market dealer · Offering memorandum exemption · Private issuer exemption.
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