Complete Guide to Becoming an Accredited Investor in Canada
Investors are discovering that there is no formal accreditation process, despite what the name suggests. Instead, individuals only need to meet certain income or asset criteria to invest in enticing high-reward asset classes, such as institutional-grade real estate, which are not otherwise available to the general public.
This article extensively covers all aspects of being an accredited investor in Canada, along with the exclusive and profitable opportunities available solely to those who meet the wealth requirements.
Table of Contents
Understanding Accredited Investors in Canada
Accredited investors in Canada are individuals, entities, or financial institutions with exclusive financial status that enables them to invest in opportunities that are not available in the public domain. An official definition in Canada consists of 22 categories, including large financial institutions and government agencies, which are not included in this discussion. Our focus, instead, is on the criteria that individuals and entities must meet to qualify as accredited investors.
Individuals in Canada are considered an accredited investor if they meet any of these net worth or asset requirements:
- • An individual with a before-tax income exceeding $200,000 for at least two consecutive years ($300,000 if combining income with a spouse) and anticipates surpassing this income in the current year.
- • An individual, either alone or with a spouse, having net assets exceeding $5 million.
- • An individual who, either alone or with a spouse, has aggregate financial assets exceeding $1,000,000, before taxes, deducting any related liabilities.
- • A Canadian individual registered under securities regulations as an adviser or a dealer.
- Some companies in Canada are capable of funding sophisticated investment vehicles and, therefore, qualify as accredited investors, provided they follow the recommended guidelines. Some of the guidelines include:
- • A trust company or trust corporation registered or authorized to engage in business under the Trust and Loan Companies Act.
- • A pension fund governed by the Office of the Superintendent of Financial Institutions, a pension commission, or a related regulatory authority of Canada's jurisdiction.
- • A registered charity under the Income Tax Act that has received advice from an eligibility adviser or an adviser registered under the securities legislation of the jurisdiction of the registered charity to provide advice on the securities being traded.
- • An investment fund advised by a registered or exempt advisor
- • An accredited investor trust established for the benefit of the accredited investor's family members, with a majority of the trustees also being accredited investors.
How to Qualify as an Accredited Investor in Canada
It is commonly believed that a process exists to become an accredited investor, but that is not the case. Neither any government agency nor any independent body scrutinizes an investor's credentials, nor does any certification exam or paper exist indicating that an individual is now an accredited investor. An individual only needs to meet the income or net worth criteria mentioned above.
Do You Need to Prove Your Accredited Investor Status?Contrary to popular belief, the responsibility of proving your accredited investor status in Canada falls on the investment vehicle you choose to invest in, instead of you as an individual. To qualify as an accredited investor, you need to meet certain wealth qualifications, but there is no federal agency or regulatory body that verifies your status or issues licenses to certify it.
Instead, the investment vehicle such as a fund, start-up, or online platform you invest in, must confirm your status as an accredited investor by conducting their due diligence. This may include providing financial statements, credit reports, or tax returns as proof of your income and/or net worth.
What Sets Accredited and Non-Accredited Investors Apart?Non-accredited investors, or retail investors, refer to individuals who do not meet the net worth or income requirements to qualify as an accredited investor. As a way to protect them from investing in areas they do not understand or cannot afford, the investment options available to non-accredited investors are limited compared to those available to accredited investors.
Accredited investors, on the other hand, can afford larger potential losses and take on riskier investments due to their high net worth and financial knowledge. These options may come with higher risks, but they also come with much higher returns. The primary difference between the two types of investors is that accredited investors can invest in private markets, while retail investors cannot.
Private Markets vs. Public MarketsThe main difference between the private and public markets is that stock and bond trading occurs on public exchanges while investments in private markets are not traded on such exchanges. Private markets are typically more risky as they are not regulated while public markets are regulated by provincial and territorial securities commissions. Private markets have lower competition and capacity but offer higher returns, making it easier to find unique opportunities. Meanwhile, public markets are more liquid, prone to economic factors, and face higher competitivity.
The Benefits of Being an Accredited InvestorAccredited investors have the opportunity to invest in lucrative private market investments, which are not available to retail investors. Having high income or savings, accredited investors can buy high-risk, high-reward opportunities, which can build their wealth more quickly. Moreover, they can diversify their portfolios by investing in both public and private markets.
Investment Opportunities for Accredited Investors in CanadaCanadian accredited investors have several unique investment opportunities. Three popular ways include investing in real estate, venture capital or private equity, and alternative investments such as hedge funds and private debt funds. Due to their high net worth qualification, they can also participate in angel investing or pre-IPO (initial public offering) investment opportunities.
Venture capital remains a popular means of equity financing that offers investors the opportunity to provide funding to burgeoning start-ups and early-stage private companies in exchange for a share of company ownership. Investors typically see returns commensurate with the amount they invest as the companies grow and appreciate in value.
While venture capital has an undeniable reputation for fueling big business growth, the truth is that only a small percentage of start-ups will generate a profit, leaving many investors with zero return. For those passionate about making a difference in the businesses they invest in without being burdened with the day-to-day management, venture capital remains an appealing option.
For investors with a more aggressive investment strategy, hedge funds may be suitable. These professionally managed funds are subject to less regulation and scrutiny than ETFs and mutual funds, and as a result, can make use of even riskier investment strategies. While hedge funds provide opportunities for gainful returns, they also come with significantly higher fees.
Investors must also be prepared to accept limited liquidity, and there is a degree of risk involved in trusting the fund managers to make sound investment decisions. The most successful hedge fund managers will build portfolios that investors are comfortable with, and they will have to trust the judgement of those managers to safeguard their investments.
While traditional real estate investment models may require sizable capital investments, accredited investors have access to alternative opportunities. Instead of flipping a house or developing a commercial property, real estate syndication, private equity real estate, and online real estate investing offer intriguing options.
Real estate syndication allows accredited investors to pool their resources and capital to purchase large-scale properties that would be impossible to buy individually. While the process of sourcing quality projects and investing partners may be arduous, investors can choose projects that match their investment goals and risk preferences. Private equity real estate and online real estate investment platforms offer similar opportunities and may be more suitable for investors intrigued by the potential for non-traditional real estate investment strategies.
Investing in real estate through private equity functions similarly to investing in a mutual fund managed by professionals and focused on various real estate projects. While this option is more secure, it may not offer the same excitement for accredited investors who want to control their investments.
For those exploring real estate investment options, online platforms offer fractional ownership of high-quality projects that were once only accessible to institutional investors. These platforms also allow investors to choose which projects they want to invest in, making it an appealing prospect for new investors.
Investing in real estate in Canada offers numerous benefits, including predictable cash flow, steady returns, tax advantages, and diversification. Renting out both commercial and residential properties allows investors to generate passive income and focus their attention on other areas of their business. Real estate investments also act as a hedge against inflation and are a great addition to a diversified portfolio.
At Parvis, investing in real estate is easy and accessible thanks to their digital platform, expert team, and strong network of builders and developers. Using blockchain technology, Parvis allows investors to buy and sell their real estate investments like stocks on an exchange. With low performance fees and a focus on maximizing returns, Parvis offers a desirable option for real estate investment.
With our team's extensive real estate, finance, and legal expertise, we have a depth of knowledge and experience when it comes to executing innovative financial structures for real estate development projects both domestically and abroad. Attracting high-caliber projects is a result of our accredited investor base and connection to quality developers, builders, and financial institutions. Through direct deal investing, our investors have the ability to exercise more control over their real estate opportunities while benefiting from access to previously restricted deal flow.
Unlike real estate crowdfunding, which is available to everyone, our offerings have higher buy-ins and no caps on investments, allowing developers to fill their funds for larger, high-quality developments much more reliably. Target returns are always posted net of fees, and we keep fees as low as possible to give you a clear understanding of the returns for each investment. By leveraging blockchain technology, we enable investors to buy and sell their position in a real estate investment like stocks on an exchange, through our secondary market.
Join today to unlock access to personalized, premium real estate opportunities that meet your investment goals.
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