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Accredited Investor Canada: A Comprehensive Guide

Accredited investors represent a select group in the investment community, enjoying unique access to opportunities beyond the general public. In this guide, we’ll delve into the world of accredited investors, exploring its qualifications and privileges while highlighting the various inclusive investment options at Amur Capital. 

Whether you’re new to investing or a seasoned professional, join us as we navigate the landscape of investing for accredited investors and the accessible investment opportunities available to all types of investors. 

Key takeaways: 

  • To qualify as an accredited investor, you must have a net income of over $200,000 in the past two calendar years or net financial assets of over $1,000,000.  
  • Accredited investors can deal with investments not registered with the Canadian Securities Administrators, such as hedge funds, private equity, and real estate, for potentially higher returns.  
  • With Amur Capital, you don’t need to be an accredited investor to venture into mortgage investing – a stable and robust investment for all types of investors. 

Who is an accredited investor in Canada?  

An accredited investor refers to any individual, entity, or financial institution that meets specific criteria set by regulatory authorities. The Ontario Securities Commission (OSC) or the National Instrument (NI 45-106) details the official definition of accredited investors in Ontario. Other provincial securities commissions, such as the British Columbia Securities Commission (BCSC) and Alberta Securities Commission (ASC) also share the same definition for an accredited investor. 

Individual Accredited Investor

This image does not constitute a complete list of qualifications for accredited investors. Visit Ontario Securities Commission for a complete list of all possible exemptions.

Individuals

According to the NI 45-106, an accredited investor is anyone who:

  • Regardless of marital status, beneficially owns financial assets with a net amount before taxes exceeding $1,000,000;
  • Either alone has a net income before taxes exceeding $200,000 in each of the two most recent calendar years, or together with a spouse have a net income before taxes exceeding $300,000 in each of the two most recent calendar years, and who in either case, reasonably expects to exceed the net income level in the current year;
  • Either alone or with a spouse, has net assets of at least $5,000,000;
  • Other than an individual or investment fund, has net assets of at least $5,000,000 as shown on its most recently prepared financial statements or
  • Be other persons approved by regulators as a dealer or an adviser.

Entities

In addition to individuals, large financial institutions and government agencies are legal entities considered as accredited investors. Some of the recommended guidelines for companies to be regarded as accredited investors are:

  • A trust company or trust corporation registered to carry on business under the Trust and Loan Companies Act;
  • A registered charity under the Income Tax Act that has obtained advice from an eligibility adviser registered under the securities legislation of the jurisdiction of the registered charity to advise on securities being traded;
  • An investment fund that is advised by a person registered as an adviser or a person exempt from registration as an adviser;
  • A pension fund regulated by the Office of the Superintendent of Financial Institutions or a pension commission of a province or territory of Canada or
  • A trust established by an accredited investor for the benefit of the accredited investor’s family members, of whom most of the trustees are accredited investors.

What is a non-accredited investor in Canada?

Simply put, non-accredited investors refer to individuals or entities who don’t meet the above financial requirements. In Canada, non-accredited investors are further divided into eligible and ineligible investors.

Eligible investors, just like accredited investors, still have to meet specific financial requirements. They can invest in securities subject to a prospectus exemption. On the other hand, ineligible investors can also buy securities under the exemption but are subject to more restrictions.

Here are the differences between accredited, eligible, and ineligible investors regarding qualification requirements and investment limits.

Accredited vs non-accredited investors

Source: Adapted from Ontario Securities Commission.

A non-accredited investor can still invest in any publicly traded stock, bond, mutual fund or publicly traded real estate investment trust (REIT). However, because these investments are listed with the respective regulatory commissions (OSC, BCSC, or ASC), they meet the requirements that can safeguard investors.

How to become an accredited investor in Canada

No government agency or independent body reviews an investor’s credentials, and no certification exam states that a person has become an accredited investor. Instead, the responsibility of proving you are an accredited investor in Canada lies with the companies selling investments to accredited investors.

In this case, the Know Your Client (KYC) and Suitability forms completed by the client will help the investment company prove if they are accredited or not. These forms include the client’s financial information, investment objectives, and risk tolerance.

What is the difference between accredited and non-accredited investors?

As mentioned above, a non-accredited investor is an investor who did not meet the financial requirements defined earlier. Non-accredited investors also have limited investment opportunities to protect them from riskier investment areas.

The purpose of the accredited investor designation is to prove investors have the sophistication, financial knowledge and means to invest in higher-risk areas. With higher risks, they may be exposed to more significant losses but may also receive higher returns.
In investing, these higher-risk areas are often found in private markets, specifically in the Exempt Market Securities. The exempt market describes a part of private markets for which exemptions are provided from the full requirements of a prospectus disclosure. A prospectus is a disclosure document that outlines all material information about an investment security issued by a company to the public.

To understand better, here are the differences between private and public markets:

Public market: refers to financial markets where investments are traded on exchanges, which involve companies selling shares to institutional and retail investors who can buy, sell, or trade these shares on a stock exchange.

Since the public can quickly invest in them, several territorial and provincial securities commissions regulate the public market. An advantage of public markets over private markets is that they are more liquid, which means investors can quickly sell their stakes in a company.

Private market: refers to a section of capital markets where investments are not traded on public exchanges such as the stock exchange. Private market securities often require a medium to long-term investment horizon and are valued much less frequently than public market securities, which means there is minimal possibility of valuations being dragged down by short-term investor sentiments that can cause stock prices to rise or plummet overnight.

Acif vs tsx composite index update

Source: Amur Capital. Please read the offering memorandum before investing. An investment in Amur Capital Income Fund is not guaranteed and past performance may not be repeated.

Previously, accredited investors were the only ones able to operate in exempt markets and deal with investments not registered with the Canadian Securities Administrators (CSA). However, changes in the NI 45-106 (Prospectus and Registration Exemptions) have made investing in these areas accessible to non-accredited investors, with restrictions on investment amounts.

Benefits of being an accredited investor

The main benefit of being an accredited investor is access to more investment opportunities in both public and private markets. Accredited investors can quickly diversify their portfolios and mitigate risk with any asset class.

Reduced regulatory requirements

Reduced regulations mean a low barrier to entry to private securities. This makes it easier and less costly for accredited investors to access private securities offerings.

Access to private market offerings

As mentioned, an accredited investor can access more investment opportunities, mainly in the private markets. This can include investments in startup companies, real estate, and other alternative investments.

Higher returns

As with any investments, those with a possibility of higher returns tend to be riskier, which is why financial and knowledge requirements exist to become an accredited investor.

Investment opportunities for accredited investors in Canada

Here are some examples of alternative investments for accredited investors:

Hedge fund investments:

Hedge funds have higher risks and only accept accredited investors. In addition, hedge funds are managed by career investors, who can limit your choice of immediate liquidity and withdrawals. Since managers decide whether to buy or sell for a fund, hedge funds have significantly higher fees.

Venture capital investments:

Venture capitalists, or those who provide money for startups in exchange for ownership equity in the business, are often accredited investors. This equity can then be cashed out when the company has an exit through an Initial Public Offering (IPO) or sale, earning a profit for these investors.

Real estate investments:

Traditionally, investing in real estate requires much capital upfront. This is particularly true for flipping or developing a commercial property. However, many alternative real estate investments are now less costly yet easy to manage.

Mortgage Investment Corporations (MICs):

One form of real estate investment offered by Amur Capital is through a Mortgage Investment Corporation (MIC). MICs are flow-through investments, meaning the corporation does not pay tax. Instead, income is flowed through to the investors.

MICs operate like mutual funds, whereby you would invest in a professionally managed fund that invests in mortgages. Since it is professionally managed, MICs can lessen the risks and offer you more knowledge and access to various real estate projects.

Benefits of investing in mortgages in Canada

With differences in the availability of investment opportunities, accredited investors may seem to have the edge over non-accredited investors. However, you don’t need to become an accredited investor to get good investment returns. One area open to accredited and non-accredited investors is mortgage investing.
Here are some of the benefits of investing in mortgages:

Passive income:

Mortgage investing is a great way for investors to generate passive income in the form of dividends. Through a continuous stream of high-quality mortgages, investors can enjoy a consistent source of income without the need for active involvement in day-to-day operations.

Secured investment:

Our strong underwriting and approval policy within our origination entities has bolstered the confidence in the quality of the loans we originate. However, in rare cases of borrower default, the property serves as a reliable asset to ensure the protection of your investment.

Portfolio diversification:

With no correlation to the fluctuations in the value of stocks, bonds, and other public market securities, mortgage investing can be a great diversification tool. Mortgage investing also serves as an effective hedge against inflation, as property values tend to appreciate along with general prices over time.

Tax advantages:

Amur Capital’s mortgage funds are eligible for any registered accounts, such as the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and Registered Education Savings Plan (RESP). Investing through these registered accounts will allow tax-free or tax-deferred returns on your investment, depending on the account. 

Amur Capital: Mortgage investing for all Canadian investors

Mortgage investing has opened a wealth of opportunities for all Canadian investors. Whether you are a seasoned and accredited investor or a new investor testing the waters, mortgage investing offers a unique and rewarding investment opportunity in Canada’s thriving real estate market.

At Amur Capital, investors can access mortgage investing. With a focus on trust, expertise, and attractive risk-return profiles across three different MIC fund offerings, Amur Capital provides a streamlined platform for seasoned and new investors alike looking to diversify their portfolios and generate steady passive income.

Investing at Amur Capital

Frequently Asked Questions

As mentioned above, income, net assets, and skills are requirements to qualify as an accredited investor. Income requirements can include having more than $200,000 in the two most recent calendar years, while net asset requirements include having at least $5,000,000.

An eligible investor in Canada refers to an individual:

  • Whose net income before taxes exceeds $75,000 in each of the two most recent calendar years (or $125,000 with a spouse)
  • Whose net assets alone or with a spouse, exceed $400,000 or
  • Of which a majority of the voting securities are beneficially owned by eligible investors, or a majority of the directors are eligible investors

Most commonly, MICs are offered to investors under exemptions from prospectus requirements. As with all securities offered in the exempt market, MICs are distributed primarily by way of an offering memorandum (OM) and may only be purchased by certain investors who qualify for exemption (e.g. accredited investor exemption, eligible investors under the OM exemption, or the family, friends or business associates (FFBA) exemption).

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