An individual is an accredited investor only by passing one of four financial tests in the definition in section 1.1 of National Instrument 45-106 Prospectus Exemptions: $1 million in financial assets, $5 million in financial assets, $200,000 of net income (or $300,000 with a spouse) in each of the two most recent calendar years, or $5 million in net assets. The rest of the exemption is proving it.
Key takeaways
SECTION 01 OF 10
Section 2.3(1) reads: “The prospectus requirement does not apply to a distribution of a security if the purchaser purchases the security as principal and is an accredited investor.” Everything deciding whether a raise was lawful sits in the last two words, defined in section 1.1 across paragraphs (a) to (w). Most describe institutions; only four describe an ordinary individual.
NI 45-106 is not a federal statute; each commission adopts and publishes it under its own securities legislation, which is why the text carries carve-outs reading “except in Ontario”. The version quoted here is the BCSC consolidation effective 19 September 2025, checked word for word against the Alberta Securities Commission consolidation of the same date.
SECTION 02 OF 10
Paragraph (j): “an individual who, either 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”. Paragraph (j.1) is the same test at “an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5 000 000” — note the missing spouse.
Paragraph (k): “an individual whose net income before taxes exceeded $200 000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300 000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year”. Paragraph (l): “an individual who, either alone or with a spouse, has net assets of at least $5 000 000”.
Companion Policy 45-106CP calls these bright-line standards: “Investors who do not satisfy these monetary thresholds do not qualify as accredited investors under the applicable paragraph.”
SECTION 03 OF 10
The instrument defines “financial assets” as cash, securities, and a contract of insurance, deposit or evidence of a deposit that is not itself a security. The Companion Policy states flatly that “The value of a purchaser’s personal residence is not included in a calculation of financial assets.” Nor is the private company the investor owns, or its equipment.
The subtraction is narrow. Only “related liabilities” come off, meaning liabilities “incurred or assumed for the purpose of financing the acquisition or ownership of financial assets” or secured by them. An investment loan reduces the number; a home mortgage does not. An owner with a $2 million business and a paid-off house can hold nothing at all that counts under paragraph (j).
SECTION 04 OF 10
Paragraph (l) measures the other thing: “the net asset test under paragraph (l) means all of the purchaser’s total assets minus all of the purchaser’s total liabilities”, with assets taken at “their estimated fair value” and income tax counted as a liability “if the obligation to pay it is outstanding at the time of the distribution of the security.”
So the house returns on both sides: “the calculation of total assets would include the value of a purchaser’s personal residence and the calculation of total liabilities would include the amount of any liability (such as a mortgage) in respect of the purchaser’s personal residence.” A seller is expected to be able to explain “the meaning and differences between the two terms”.
SECTION 05 OF 10
Paragraph (k) is three conditions wearing one number. The investor must have cleared the threshold in each of the two most recent calendar years — both, not an average — and must reasonably expect to clear it again this year.
The combined branch is no top-up. The Companion Policy gives arithmetic nobody expects: “If the combined net income of both spouses does not exceed $300 000, but the net income of one of the spouses exceeds $200 000, only the spouse whose net income exceeds $200 000 qualifies as an accredited investor.” A couple at $210,000 and $60,000 contains exactly one accredited investor, and the subscription must be in that spouse’s name alone.
SECTION 06 OF 10
The Companion Policy sets out the design: “Three branches of the definition (in paragraphs (j), (k) and (l)) are designed to treat spouses as a single investing unit”. Then: “The fourth branch, the $5 000 000 financial asset test, does not treat spouses as a single investing unit.” That reaches registered accounts: assets in a spousal RRSP count for the $1 million test in (j), but “financial assets in a spousal RRSP would not be included for purposes of the $5 000 000 financial asset test in paragraph (j.1)”.
The instrument’s “spouse” is wider than marriage: an individual “is living with another individual in a marriage-like relationship” qualifies.
SECTION 07 OF 10
The risk acknowledgement is a condition of the exemption, not paperwork that follows it. Section 2.3(6) says the exemption “does not apply to a distribution of a security to an individual described in paragraphs (j), (k) or (l)” of the definition “unless the person distributing the security obtains from the individual a signed risk acknowledgement in the required form at the same time or before that individual signs the agreement to purchase the security.” Section 6.5(0.1) names it: “The required form of risk acknowledgement under subsection 2.3(6) [Accredited investor] is Form 45-106F9.”
Paragraph (j.1) is absent from that list, deliberately: such an individual is also a permitted client under NI 31-103, and so “is not required to obtain a signed risk acknowledgement in Form 45-106F9 Form for Individual Accredited Investors from that individual”. Corporations, trusts, funds and registrants sign nothing either — the requirement reaches individuals only. (The policy’s cross-reference to subsection 2.3(7) is stale; the requirement now sits at 2.3(6).)
The form’s sequence is mandatory: “The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs the form”. Eight years reflects “the longest limitation period under securities legislation in Canada.”
SECTION 08 OF 10
The Companion Policy puts the burden where the money is: “The person relying on a prospectus exemption is responsible for determining whether the terms and conditions of the prospectus exemption are met.” Then the sentence that decides most files: “It will not be sufficient for the seller to accept standard representations in a subscription agreement or an initial beside a category on Form 45-106F9 Form for Individual Accredited Investors unless the seller has taken reasonable steps to verify the representations made by the purchaser.” A signed form is the floor, not the proof.
What is expected instead is a conversation, held before the pitch: “Before discussing the details of an investment with a prospective purchaser, we expect the seller to obtain information that confirms the purchaser meets the criteria set out in the exemption.” Ask about “net income, financial assets or net assets”; if the answers give pause, “the seller should make further inquiries”; and if doubt survives, “the seller should not sell securities to the purchaser in reliance on that exemption.”
Timing cuts both ways. The tests “are to be applied only at the time of the distribution of the security”, so an investor wiped out a year later does not retroactively break the raise — but the evidence has to exist at that same moment, and each closing is its own test. Treadstone Law’s checklist for taking on an investor walks the closing sequence; its note on the Ontario exemptions declines to print the numbers at all, telling readers to “verify current thresholds with the OSC before relying on them”.
SECTION 09 OF 10
Section 2.3(8) says “Subsection (1) does not apply in Ontario.” Ontario’s exemption is statutory: subsection 73.3(2) of the Securities Act (Ontario) uses identical words, and the Act’s own definition lists institutions and designated persons, closing with “such other persons or companies as may be prescribed by the regulations” — which is how the individual tests reach Ontario. Form 45-106F9 still applies there: subsection 2.3(0.1) defines the exemption to take in Ontario’s 73.3(2).
SECTION 10 OF 10
If the investor missed a paragraph, or the form was signed after the subscription agreement, or nobody took reasonable steps, the sale falls back on the prospectus requirement — in Ontario, section 53(1): “No person or company shall trade in a security… if the trade would be a distribution of the security, unless a preliminary prospectus and a prospectus have been filed and receipts have been issued for them by the Director.” Contravening Ontario securities law is an offence under section 122(1)(c), carrying “a fine of not more than $10 million or to imprisonment for a term of not more than five years less a day, or to both”.
Shares taken up this way are restricted paper too: the note above section 2.3 records that “First trades are subject to a restricted period on resale.” If your investors do not clear these numbers, the answer is a different exemption, not a looser reading of this one. The family, friends and business associates route is the usual alternative for a small raise; Treadstone Law’s primer on raising money and its comparison of debt and equity financing set out the surrounding choices, and the shareholder agreement decides what the money buys.
Not on its own. The financial-asset tests only count cash, securities, and certain insurance or deposit contracts, and the value of a private business the investor operates is not a financial asset under that definition; the separate net asset test uses a different $5 million calculation entirely.
Only the higher-earning spouse qualifies. Where combined spousal income does not clear $300,000 but one spouse individually clears $200,000 in each of the two most recent years, only that spouse is an accredited investor, and the subscription must be made in that person’s name alone.
No. A signed form is a condition of the exemption but not proof that it applies. The seller must take reasonable steps to verify the investor’s representations, since accepting a standard signed form without further inquiry is not considered sufficient.
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