There are three ways an individual may qualify under the accredited investor exemption based on financial thresholds. These financial
thresholds must be satisfied at the time of the distribution of, or trade in, the exempt security.
$1M Financial Asset
- An individual, alone or with a spouse, must beneficially owns “financial assets” with an aggregate realizable value, before taxes but net of any related liabilities, of $1 million.
- Financial assets means (a) cash, (b) securities or (c) a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation, but does not include real property such as a personal residence. The test permits individuals to include the value of any financial assets they “beneficially” own.
$5M Net Asset Test
- An individual, either alone or with a spouse, has net assets of at least $5 million. Net assets are determined by subtracting the total amount of the individual’s liabilities from the total value of the individual’s assets. The dollar amounts assigned to assets and liabilities must be fair estimates of value.
- An individual can include the value of their primary residence in their net asset test but must deduct the amount of any mortgage on the property. The calculation does not require a deduction for any future income taxes, but any taxes that are outstanding and payable at the time of the trade must be deducted.
Income Test
- An individual with net income before taxes exceeds $200,000 in each of the two most recent calendar years; or net income before taxes combined with that of a spouse exceeds $300,000, in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year.
