How to Invest in Shares as a Self-Employed Australian: Structure, Tax and CGT Planning

Self-employed Australians can hold share investments in several structures, each with different tax treatment, CGT outcomes, and administrative costs. The main options are: personal name (as an individual), a company, a discretionary (family) trust, or a self-managed super fund (SMSF). Each suits different circumstances.

Personal name: the simplest structure. Capital gains on shares held more than 12 months attract the 50% CGT discount (only 50% of the gain is assessable). Franked dividends are assessed at your marginal rate with a franking credit offset. Losses are offset against gains but cannot be offset against business income. The primary disadvantage is that all investment income is taxed at your personal marginal rate (up to 47%) - with no income splitting flexibility.

Company: companies pay corporate tax at 30% (or 25% for base-rate entities with turnover under $50 million). Companies do not receive the 50% CGT discount - all capital gains are taxed at the corporate rate. This makes companies tax-inefficient for holding growth shares intended to be sold. Companies are better suited to holding income-generating assets (high-yield dividend payers) where the 30% corporate rate is a discount from the individual 47% marginal rate - and where accumulated profits can be paid out as franked dividends when the shareholder's marginal rate is lower (e.g., in retirement).

Discretionary (family) trust: retains the 50% CGT discount on long-term capital gains, and allows income splitting across family members at lower marginal rates. The most tax-flexible structure for share investing with multiple family beneficiaries. Requires annual distribution resolutions, compliance costs, and careful management of trust loss rules (losses are quarantined and cannot be distributed).

SMSF: capital gains inside an SMSF in accumulation phase are taxed at 15% (10% with the one-third discount for assets held 12+ months). In pension phase, capital gains on assets supporting pension liabilities are completely tax-free. The SMSF is the most tax-efficient long-term vehicle for substantial share portfolios - at the cost of locked-up capital until preservation age.

Self-employed Australians can borrow to invest in shares - interest on the loan is deductible against investment income. This creates the potential to negatively gear a share portfolio: if interest and other investment costs exceed dividend income, the net investment loss offsets other assessable income (business income, salary, or other investment income).

Margin loans: a facility where the lender provides credit secured against your existing share portfolio. The loan-to-value ratio (LVR) determines how much you can borrow relative to the portfolio value. Margin loans are callable - if the portfolio value falls and the LVR exceeds the maintenance level, the broker will issue a margin call requiring you to either deposit additional cash or sell portfolio assets. The 2020 COVID crash and the 2022 tech correction generated significant margin calls for leveraged investors.

Portfolio loans (investment lending): an alternative to margin loans, using the share portfolio as security but with less aggressive LVR requirements. Some lenders offer fixed-term investment loans with no margin call provision - useful for long-term investors who do not want the risk of forced liquidation.

Deductibility rules: interest on borrowings used to buy income-producing shares is deductible in the year it is paid or accrued. If the shares do not produce income (e.g., you hold only growth stocks paying no dividends), the ATO may challenge the deductibility of interest on the basis that the investment has no realistic prospect of producing assessable income. Hold at least some dividend-paying shares in a leveraged portfolio to support the income-production purpose.

Investment management fees: ongoing fees paid to a financial adviser or investment manager for managing a share portfolio are deductible if the fees relate to income-producing investments. Upfront financial planning fees (for establishing a plan) are generally not deductible - only ongoing management fees for managing an existing investment portfolio.

Franking credits from Australian share dividends work the same way for self-employed investors as for employees - the grossed-up dividend (cash + franking credit) is assessable income, and the franking credit offsets the tax payable. However, the structure through which shares are held affects how franking credits flow.

Personal name: franking credits flow directly to you and offset your personal tax liability. If your marginal rate is below 30%, excess franking credits are refunded by the ATO - particularly valuable for self-employed individuals with variable income who have low-income years.

Company: companies can receive franked dividends and use the franking credit to offset corporate tax. When the company distributes profits to shareholders as franked dividends, it passes on the franking credits. This franking credit streaming works efficiently for self-employed individuals who operate through a company - but requires careful franking account management.

Trust: a discretionary trust passes franked dividends (and the attached franking credits) through to beneficiaries in proportion to their entitlement to income. Beneficiaries claim the franking credits in their personal tax returns. Trusts cannot redistribute franking credits disproportionately - they must be allocated in the same ratio as the grossed-up dividends.

SMSF: SMSFs pay 15% tax on income including franked dividends. The franking credit (30% of the gross dividend) exceeds the SMSF's 15% tax liability - the excess is refunded in cash. This means Australian share dividends held in an SMSF in accumulation phase generate a tax refund equal to 15% of the grossed-up dividend. In pension phase, the full 30% franking credit is refunded - making fully franked Australian shares among the most tax-efficient investments available inside a pension-phase SMSF.

The 50% CGT discount is the most powerful CGT planning tool available to individual and trust investors. Hold shares for more than 12 months before selling - the discount halves the taxable gain. For a self-employed individual on the 47% marginal rate, the effective CGT rate on long-term gains drops from 47% to 23.5%.

Income variability advantage: self-employed Australians typically have more variable income than employees. In a low-income year (business downturn, parental leave, semi-retirement), timing large share sales to coincide with lower income can significantly reduce the marginal rate applied to capital gains. A $50,000 capital gain (post-50% discount) falling in a $60,000 income year is taxed at 32.5% - versus 47% in a $200,000 income year. Tax-optimal sale timing is a genuine advantage for self-employed investors.

Tax-loss harvesting: realising capital losses on underperforming positions before 30 June to offset capital gains from successful positions. Self-employed investors should review their portfolio for embedded losses before year-end. Losses can only offset gains - they cannot reduce business income. Carry forward any net capital losses to future years.

Contract date matters: for share sales, the CGT event occurs on the trade date (the date the sale order is executed), not the settlement date. For a sale near 30 June, the income year is determined by the trade date. If you want to defer a capital gain to the next income year, ensure the trade is executed on or after 1 July - not just settled in July.

Self-employed Australians are not required to pay the Superannuation Guarantee (SG) - there is no employer making compulsory contributions on their behalf. This means super contributions are entirely voluntary but also entirely within the self-employed individual's control.

Concessional (before-tax) contributions: self-employed individuals can claim a full deduction for personal super contributions up to the concessional cap ($30,000 in 2024–25) - provided they lodge a notice of intent to claim a deduction with the fund before lodging their tax return. These contributions are taxed at 15% in the fund (or 30% under Division 293 if income plus concessional contributions exceeds $250,000).

For a self-employed investor on the 47% marginal rate, a $30,000 concessional super contribution saves $32 in tax per $100 contributed ($47 income tax avoided minus $15 super tax paid). This is a guaranteed 32% return - superior to most risk-free alternatives and significantly better than deploying the same $30,000 into a HISA at an after-tax return of 2.65%.

The carry-forward concessional contribution rule is particularly valuable for self-employed individuals with variable income: in a high-income year, access up to 5 years of unused cap (up to $137,500 in a single year if the super balance was under $500,000 at the prior 30 June) to shift income from the 47% marginal rate to 15% inside super.

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Review these points when structuring your share investments:

• Choose your investment structure before buying - personal name (50% CGT discount), trust (50% discount + income splitting), company (30% tax, no discount), or SMSF (15% or 0% in pension phase)
• Hold shares for more than 12 months before selling - the 50% CGT discount halves your taxable gain
• Time large capital gain realisations to low-income years when possible - self-employed income variability is a genuine CGT planning advantage
• Interest on borrowings to buy income-producing shares is deductible - hold dividend-paying shares in leveraged portfolios to support the income-production purpose
• Claim deductible investment management fees for ongoing portfolio management - not upfront financial planning fees
• For self-employed individuals, make personal super contributions up to the $30,000 concessional cap and lodge a notice of intent to claim a deduction before filing your tax return
• In high-income years, access carry-forward concessional contributions (up to $137,500) to shift income from 47% marginal rate to 15% inside super
• Franking credits from Australian shares reduce your tax bill at the personal level - Australian share ETFs (VAS) pass through franking credits efficiently
• Harvest capital losses before 30 June - sell loss-making positions to offset gains realised during the year
• CGT event for shares is the trade date not the settlement date - execute sales after 1 July if you want to defer the gain to the next income year

Self-employed Australians have more structural flexibility for share investing than employees - but each structure involves trade-offs between tax efficiency, liquidity, compliance cost, and income splitting. Get specific advice before establishing a new investment structure.