To invest in private equity in Canada as an individual, you generally need to qualify as an accredited investor under National Instrument 45-106, which most people meet through income above $200,000 (or $300,000 with a spouse) or financial assets over $1 million. Once eligibility is confirmed, you choose a fund, work through a subscription package with the manager or an exempt market dealer, and commit capital that the fund draws down in stages over a life of roughly ten years. Your money is illiquid for that entire period, and the fees, tax reporting, and default penalties are meaningfully different from anything you deal with in a public-market portfolio.
Who Is Allowed to Invest
National Instrument 45-106 governs prospectus exemptions across Canadian provinces and defines who can buy into private placements without the protections of a full prospectus. The accredited investor exemption is the standard route for individuals, and the provincial securities commissions enforce it.1Ontario Securities Commission. National Instrument 45-106 Prospectus Exemptions
You qualify as an individual accredited investor through any one of three tests:
- Net income exceeding $200,000 in each of the two most recent calendar years, with a reasonable expectation of the same in the current year. The joint threshold with a spouse is $300,000.
- Financial assets with a realizable value exceeding $1 million. Financial assets are cash, securities, and investment contracts. Real estate, including your primary residence, does not count.
- Net assets of at least $5 million, alone or combined with a spouse.
Entities have their own path. A corporation, limited partnership, trust, or estate qualifies if net assets are at least $5,000,000 on its most recent financial statements.2Ontario Securities Commission. OSC Rule 45-501 Ontario Prospectus and Registration Exemptions If you plan to invest through a holding company or family trust, your accountant will need to confirm the entity clears that threshold before any fund accepts a subscription.
Paths in for Non-Accredited Investors
Missing the accredited thresholds does not close the door entirely, but the options are narrower and capped.
Offering Memorandum Exemption
Under the offering memorandum (OM) exemption, an issuer can sell to a broader group of investors by delivering a detailed disclosure document. If you invest under this exemption without being accredited, your annual investment is limited:
- Non-eligible investors can invest up to $10,000 across all OM investments in the previous 12 months.
- Eligible investors can invest up to $30,000 in the same period, rising to $100,000 with suitability advice from a registered portfolio manager, investment dealer, or exempt market dealer.
OM investments come with a statutory two-business-day cancellation right. You can cancel by sending written notice to the issuer before midnight on the second business day after signing the subscription agreement.1Ontario Securities Commission. National Instrument 45-106 Prospectus Exemptions The fund cannot waive it, and missing the deadline ends it.
Minimum $150,000 Exemption
Section 2.10 of NI 45-106 allows you to participate without accredited status and without an OM if you invest at least $150,000 paid in cash at the time of the transaction. The exemption is sometimes used by investors who fall just short of the accredited tests but have the capital for a single large commitment.
How You’ll Hold the Investment
Limited Partnerships
The limited partnership is the dominant structure in Canadian private equity. A general partner runs the fund and makes investment decisions; limited partners contribute capital. A limited partner’s liability is capped at committed capital, and income, losses, and capital gains flow through to each partner’s personal tax return rather than being taxed at the fund level.3Canada Revenue Agency. GST/HST Memorandum 14-9-1 – Partnerships – Determining the Existence of a Partnership Flow-through treatment is the main reason the LP is the default vehicle for buyout and venture funds.
Private Equity ETFs
Private equity exchange-traded funds listed on the Toronto Stock Exchange hold shares in publicly traded PE firms or in companies that specialize in private acquisitions. You can buy and sell them any trading day, which solves the illiquidity problem but puts you one step away from the underlying private companies. Regulatory oversight follows standard rules for listed securities.
Fund of Funds
A fund of funds invests across multiple underlying PE funds, spreading capital across managers, strategies, and sectors through a single commitment. You pay the fund-of-funds manager on top of the fees charged by the underlying funds. For investors who cannot meet the high minimums of top-tier direct funds, or who want diversification across vintage years, it can be a practical entry point.
What It Costs
Private equity fees run higher than public-market equivalents and are layered. The traditional model is “two and twenty”: a 2% annual management fee on committed capital, plus 20% carried interest on profits above a return threshold. In practice, many PE funds charge closer to 1.5% management. Some established managers charge 3% and 30%; emerging managers sometimes offer less to attract capital. Management fees are charged for the full fund life regardless of performance. Carried interest only kicks in after the fund has returned your original capital and cleared a minimum return hurdle, often around 8%.
Every fund agreement includes a distribution waterfall setting the order profits are paid out: return of your invested capital first, then a preferred return at the hurdle rate, then a catch-up allocation to the general partner, then the remaining gains split according to the carry ratio. The specific mechanics vary between funds, and they are spelled out in the limited partnership agreement. Reading those provisions carefully before committing is one of the most important pieces of due diligence you can do.
The Subscription Process
Once you have picked a fund and confirmed eligibility, the paperwork phase takes a few weeks from initial submission to final acceptance.
KYC and Identity Verification
The fund or the exempt market dealer will start with a Know Your Client process, collecting your financial goals, risk tolerance, investment experience, and time horizon to confirm the product is suitable. Anti-money laundering rules require government-issued photo identification such as a passport or driver’s licence.4FINTRAC. Methods to Verify the Identity of Persons and Entities Compliance verifies your identity before your subscription is processed.
Proof of Accreditation
If you are relying on the accredited investor exemption, you will need documentation. That usually means recent tax returns or notices of assessment for the income test, or audited financial statements and brokerage summaries for the asset tests. Some funds accept a signed certificate from your accountant or lawyer. The fund keeps these records, and provincial regulators can audit them.
Subscription Agreement
The subscription agreement is the legal contract between you and the fund. You fill in your legal name, tax residency, social insurance number, investor classification under NI 45-106, and banking information for future distributions.1Ontario Securities Commission. National Instrument 45-106 Prospectus Exemptions The package includes risk acknowledgment forms confirming you understand the investment is illiquid and could result in total loss. Most firms handle this through secure digital portals. Everything goes through compliance review before the fund countersigns and admits you as a limited partner.
Capital Calls and the Ten-Year Lock-Up
You do not fund the whole commitment on day one. Private equity uses a capital call structure: the fund draws down committed capital in stages as it identifies and closes deals.
How Calls Work
A capital call notice specifies the amount due and the deadline, typically five to ten business days. Funding is by wire transfer or bank draft to a trust account held by the fund. After the transfer clears, the manager issues a confirmation of interest statement showing your updated capital account. Over a fund’s life, you may see anywhere from a handful to dozens of calls as the manager deploys capital.
What Happens If You Miss One
Missing a call triggers penalties written into the limited partnership agreement. Consequences typically include interest charges on the unpaid amount, forced sale of your partnership interest at a steep discount, or outright forfeiture of your existing stake. The general partner has discretion in enforcement, but counting on leniency is a bad plan. Before committing, be sure you can meet calls across the full investment period, not just the early years.
Lock-Up and Secondary Sales
A typical private equity fund runs about ten years: five to six years of active investing, then four to five years of harvesting returns as portfolio companies are sold. Your capital is locked up throughout. There is no redemption button.
If you need out early, the secondary market is your only realistic route. You would review the partnership agreement for transfer restrictions, engage a broker to find a buyer and negotiate price, and get the general partner’s formal consent to the transfer. A straightforward sale can close in a few weeks, but expect a discount to net asset value, sometimes a significant one. The GP almost always has the right to approve or refuse a transfer, so this is not a guaranteed exit.
How Returns Are Taxed
The tax picture centers on the flow-through nature of the limited partnership. The fund itself does not pay tax. Your share of the partnership’s income, capital gains, and losses flows to your personal return each year.
Each year the fund issues a T5013 Statement of Partnership Income showing your allocated share of results. You attach the slip to your T1 return and report the amounts on the corresponding lines.5Canada Revenue Agency. Guide for the Partnership Information Return (T5013 Forms) The slip breaks out business income, capital gains, dividends, and foreign income, each with its own tax treatment. T5013 slips are often issued late, sometimes after the normal April filing deadline, which may require you to file an extension or amend a return.
Most PE returns come as capital gains when portfolio companies are sold. Under long-standing rules, one-half of a capital gain is included in taxable income. The federal government announced in January 2025 that it intended to increase the inclusion rate from one-half to two-thirds for capital gains exceeding $250,000 annually, effective January 1, 2026.6Government of Canada. Government of Canada Announces Deferral in Implementation of Change to Capital Gains Inclusion Rate As of that announcement, the enabling legislation had not been enacted, and whether the increase takes effect is uncertain following the 2025 federal election. Confirm the current status with a tax professional before making decisions on either inclusion rate.
Registered Accounts: Mostly Off the Table
Holding PE inside an RRSP, TFSA, or FHSA is technically possible in narrow cases, but the rules are restrictive enough that most direct fund interests will not qualify. Shares of a specified small business corporation can be qualified investments for an RRSP, but they become prohibited if you hold 10% or more of any class of shares or do not deal at arm’s length with the corporation. A general partnership interest is never a qualified investment for any registered plan.7Canada Revenue Agency. Income Tax Folio S3-F10-C1 Qualified Investments
The TFSA rules mirror the RRSP rules, and shares of private investment holding companies and foreign private companies are specifically identified as non-qualified. Holding a non-qualified investment triggers a one-time tax of 50% of the fair market value in the year it is acquired or becomes non-qualified. A prohibited investment (a 10%-or-more interest) draws a 100% penalty tax on any income or gains. The FHSA follows the same qualified investment rules.8Canada Revenue Agency. Investments in Your FHSAs
In practice, the workable way to get PE exposure inside a registered account is through publicly listed PE ETFs on the TSX, which are always qualified investments. Direct fund interests need careful structuring and professional tax advice to stay outside the penalty regime.