When we consider investing funds for clients, one of the first things we evaluate is the structure in which the investments will be held. Without going deep into technical details, here’s an overview of the main options and how we think about them.
Individual ownership
A common question from clients is, “What’s the capital gains tax rate?” For individuals, capital gains and other investment income are added to their other income (such as wages) and taxed at their marginal tax rate. This means the tax on investment earnings can vary from year to year. The current rates for resident individuals are shown in the table below:
| Taxable Income | Tax Payable |
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16% of the amount over $18,200 |
| $45,001 – $135,000 | $4,288 + 30% of the amount over $45,000 |
| $135,001 – $190,000 | $31,288 + 37% of the amount over $135,000 |
| $190,001 and above | $51,638 + 45% of the amount over $190,000 |
Note: These rates exclude the Medicare Levy of 2%, which generally applies to most taxpayers.
For long-term capital gains (on assets held for more than 12 months), only 50% of the gain is taxable. If you’re on a high tax rate, it can be more effective to hold lower-income, higher-growth assets that might be realised in future years—particularly after retirement, when your income (and marginal tax rate) may be lower.
Company ownership
Companies are taxed at either 25% or 30%, depending on whether the income is active business income or passive investment income. If more than 80% of a company’s income comes from passive investments, the 30% rate applies. Unlike individuals, companies don’t receive a capital gains tax discount for long-term holdings.
Family trusts
Family trusts don’t pay tax themselves. Instead, they are required to distribute all income each year to beneficiaries, usually within the family group. This allows for strategic streaming of income—sending capital gains to individuals (to access the 50% discount) and interest income to corporate beneficiaries (to potentially take advantage of lower tax rates).
Superannuation funds
Super funds are taxed at 15% in the accumulation phase and 0% in the pension phase. To access the pension phase, you must meet a condition of release—usually this means being over age 60 (or 65, if no retirement condition is met earlier). In accumulation, long-term capital gains are taxed at 10%.
Super’s tax rates are hard to beat, but it’s not suitable for funds you may need before age 60. There are also caps on how much you can contribute, so higher-net-worth individuals often need to explore other structures. (Note: At the time of writing, the proposed 30% tax on member balances over $3 million—”Jim’s tax”—had not been legislated, so it hasn’t been covered here.)
The role of tax in investment structuring
Some clients think tax planning is purely their accountant’s domain. But financial planners bring a forward-looking perspective, using cashflow and asset projections to model the future. As the saying goes, “Skate to where the puck is going, not where it’s been.” Sometimes your accountant is being hit in head with so many pucks (which tend to be countless ATO deadlines) they have no time to see where your pucks are going.
For example, once your super balance reaches $2 million, adding more to super can become less tax-effective. We can help structure contributions between couples to optimise outcomes—such as using contribution splitting or a transition-to-retirement strategy where one partner over 60 withdraws from their super tax-free and recontributes it to their spouse’s account.
We also help clients consider the use of trusts and companies for intergenerational wealth planning. Getting the structure right from the start—while balances are low—is crucial, as changes later can trigger capital gains tax. Setting up entities with appropriate shareholders and beneficiaries early (e.g. a family trust as shareholder of an investment company) can offer both tax efficiency and estate planning benefits.
Investment selection and tax outcomes
For clients with complex needs and multiple structures, matching investments to the right structure can make a big difference. Higher-yielding, low-capital-gain investments may suit a company structure, while higher-growth assets may be better suited to a family trust. Super is ideal for long-term assets you won’t need to access until retirement. But life doesn’t always follow the plan, so flexibility and liquidity considerations are also key.
We analysed decades of tax statements from investment managers to build realistic assumptions for our models. While historical return data is widely available, taxable income data is harder to come by—and what we found was striking. There are major differences between managers and strategies in how much of a return is taxable each year.
For example, the Dimensional World Equity Trust returned 10.74% p.a. from 2014–2024, but only 2.6% of this was taxable income. The remaining 8.14% was unrealised long-term capital growth—not taxed until the investment is sold. Over 10 years, this tax deferral had a compounding effect:
- A $1 million investment taxed annually at 30% on the full return would grow to $2.06 million.
- With only 2.6% taxed annually, the same investment would grow to $2.68 million.
We’ve even seen cases where stockbrokers turn over portfolios at 150% per year, effectively wiping out any long-term gain benefit—and incurring unnecessary transaction costs.
Managing tax in retirement
Most of the above has focused on the accumulation phase. But once you begin drawing on your investments, it’s crucial to draw from the right sources. For instance, converting super to an account-based pension shifts tax from 15% to 0%—but you’re then required to withdraw at least 4% annually (rising with age). In some cases, it may be more effective to leave super in accumulation and instead draw income from other sources—such as franked dividends from a company or distributions from a trust.
There’s little point drawing from a 15% taxed super fund just to deposit into a 30% taxed company account if the funds aren’t needed. Again, our modelling helps guide these decisions. We want you to enjoy this phase of life without being burdened by complex tax choices. Leave that to us—that’s why some of us are bald and grey!
In summary
As you can see advice on aspects of the above needs to very personalised, as do the investments selected. If you have significant wealth and a financial planner directs you to their separately managed account to be invested in your name, it is unlikely the above has been considered thoroughly. Beware!