addy Answers: What is an Eligible Investor?

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We at addy aim to make real estate accessible for all, not just removing lofty financial barriers, but helping educate those starting their investing journey. We also want to make sure everyone complies with investing rules and regulations.

It’s especially important to know what type of investor you are, because that determines how much you are allowed by securities law to invest. We’ve talked about accredited investors and the role they play in addy; now let’s take a look at eligible investors.

We do strongly suggest checking out your province’s securities regulatory authority for more information. Here, though, we provide you with a summarized interpretation of how it works and applies to addy.

Why are investor designations important?

An eligible investor is one of three noteworthy investing categories in prospectus exempt securities. The other two are non-eligible and accredited. It’s important to note these are legal terms defined in specific ways by securities law; they are not addy-specific terms. So if you’re investing elsewhere, you’ll be running into these phrases as well.

We distribute our offerings under National Instrument 45-106, in particular section 2.9, known as the offering memorandum exemption. This exemption allows us to sell you our securities with some restrictions: one of the restrictions is how much you’re allowed to invest under this exemption. The eligible investor rules differ by province or residence of the investor; in B.C. and Newfoundland, there is no eligible investor rule.

Therefore, we need to know which one of the three categories of investors you fall under, and then cap your investment appropriately. So, are you an eligible investor?

What is an eligible investor?

An “eligible investor” is an entity – often a person or couple – that has a certain threshold of wealth so that they are able to withstand losses associated with investments.

It’s important for the government (and investing platforms) to know whether or not you’re an eligible investor so that proper compliance measures are put into place. Basically, the designation is to make sure someone investing isn’t going to lose too much money should things go awry. Securities law is trying to limit investing in high-risk by people who can’t afford to take the loss!

There are a bunch of different criteria you can meet in order to qualify as an eligible investor, but there are a few main ones more common for our members. You are an eligible investor if your:

  • net assets, alone or with a spouse, in the case of an individual, exceed $400,000;
  • net income before taxes exceeded $75,000 in each of the 2 most recent calendar years and who reasonably expects to exceed that income level in the current calendar year; or
  • net income before taxes, alone or with a spouse, in the case of an individual, exceeded $125,000 in each of the 2 most recent calendar years and who reasonably expects to exceed that income level in the current calendar year.

The eligible investor designation is important because it means you can only invest so much money in securities sold under the offering memorandum exemption in the preceding 12 months. So, if you want to invest something right after reading this article, you would need to look back at the last 12 months from now to determine what you’re able to invest. The phrase “preceding 12 months” is a rolling time frame and not a specific calendar year.

What are non-eligible and accredited investors?

To better understand eligible investors, it may be helpful to quickly define the other investor categories. If you don’t qualify for the eligible investor category – that is, your income or assets are lower than the defined amount – then you are a non-eligible investor. Your investment cap in the preceding 12 months will be lower than those of eligible investors.

At the other end of the spectrum are accredited investors. These are individuals, couples or companies with a high income or assets – in most cases more than $1 million annually – and therefore are given a higher allowance to invest.

Essentially, the more you make, the more you’re allowed to invest under the offering memorandum exemption.

Eligible investor rules across Canada

There are different restrictions on what an eligible investor can and cannot do. Here’s a quick rundown for provinces in which addy currently operates.

Investing in Ontario, Alberta and Quebec

If you live in these three provinces, the non-eligible investor threshold is set at $10,000 across a rolling 12-months.

If you are an eligible investor, however, you can continue investing up to $30,000. On top of that, if you are working with a portfolio manager, investment dealer or exempt market dealer that has advised you that the investment is suitable, then the cap is raised to $100,000.

With addy, once you hit $8,000 worth of investments in a year, we’ll ask you your investor status.

Investing in British Columbia

There is no eligible investor threshold in B.C. As such, residents in B.C. do not need to qualify as one to keep investing past the $8,000 threshold. Splendor sine occasu indeed!

Invest with addy

addy believes in real estate for all, welcoming non-eligible, eligible and accredited investors to take part in fractional ownership. There is no requirement to have a certain amount of money, investment experience or financial regulation to become a member and invest.

However, it’s important to invest responsibly and legally. addy complies with all national and provincial regulations and laws, and we recommend seeking out professional advice and guidance when making an investment. Know your limits, and invest within it.

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