How do SAFEs work in Canada?

What a SAFE is

SAFE stands for simple agreement for future equity. Y Combinator created it in 2013 and describes it as a short contract an investor signs to fund your startup now in exchange for the right to shares later. Instead of agreeing on a valuation today, the SAFE converts into shares automatically when you raise a priced equity round.

The current standard is the post-money SAFE. Its main advantage is that the ownership you’re selling is clear and calculable at signing, so founders can see their dilution before the priced round.

How conversion works

Most SAFEs set a valuation cap, a discount, or both. At the priced round, the investor’s money converts into shares at whichever price is better for them: the price implied by the cap, or the round price less the discount. That’s why SAFEs with low caps can lead to more dilution than founders expect. It’s worth modelling your cap table before signing several of them.

Canadian versions

Y Combinator’s forms are written for US companies. Canadian law firms have published Canadian versions; for example, Torys LLP publishes a post-money valuation cap SAFE marked as a Canada version, adapted for Ontario securities law. Using a form adapted for Canada, and checking it against your share structure, avoids terms that don’t fit a Canadian corporation.

Securities law in Ontario

The Ontario Securities Act defines “security” broadly, including any agreement that money received will be treated as a subscription for shares. A SAFE generally fits that definition, so issuing one is a distribution of securities that needs a prospectus exemption.

The two exemptions early-stage companies use most are the private issuer exemption, found in Ontario in section 73.4 of the Securities Act, and the accredited investor exemption, found in section 73.3. Each has its own rules about who can invest.

If you rely on the accredited investor exemption, you must file a report of exempt distribution (Form 45-106F1) with the Ontario Securities Commission within 10 days after the distribution, under section 6.1 of National Instrument 45-106, and pay a filing fee under OSC Rule 13-502, currently $350. The private issuer exemption doesn’t require that report. The OSC has proposed raising the fee to $500 from April 5, 2027, so check the current fee before filing.

Tax

The tax treatment of SAFEs in Canada isn’t settled. In October 2025 the Canada Revenue Agency said it has no general position on SAFEs, because there isn’t one universal SAFE agreement. It said a SAFE’s legal characterization largely determines its tax treatment on conversion. Founders and investors should get tax advice on their specific SAFE.

Before you sign

Confirm the form is adapted for a Canadian corporation, model the dilution across every SAFE you’ve issued, confirm which prospectus exemption applies to each investor, and diary any OSC filing deadline.

This guide is general information about Ontario and Canadian law, not legal or tax advice for your situation. To talk through your SAFE round, book a free 15-minute consult.