Tax on investments outside super in retirement: franking credits, CGT, and the SAPTO threshold most retirees underuse

If you have investments outside superannuation — direct shares, property, managed funds, term deposits — the tax framework that applies to those assets is materially different from what applies inside super. Retirement-phase super earnings are tax-free. Non-super investment income is taxable at marginal rates. But for retirees, the combination of the personal tax-free threshold, the Senior Australians and Pensioners Tax Offset, franking credits, and the CGT discount produces structural advantages that reward deliberate management.

The personal threshold and SAPTO

The personal income tax-free threshold is $18,200. Income below this level attracts no personal income tax. When the low-income tax offset is also applied, the effective threshold — the point at which tax first becomes payable — rises to $22,575 for any individual.

For retirees who qualify for the Senior Australians and Pensioners Tax Offset (SAPTO), the effective threshold is higher again. A single SAPTO-eligible retiree has an effective tax-free threshold of $35,813, once the personal threshold, the low-income tax offset, and the full SAPTO are combined. For couples where both partners are SAPTO-eligible, the effective threshold is $31,888 for each partner — a combined $63,776 of taxable income that, split evenly between spouses, can be received entirely free of personal income tax. The couple threshold is lower per person than the single threshold because the SAPTO amount is structured differently for couples than for singles.

SAPTO eligibility has its own income test — qualifying generally requires receipt of the Age Pension, the CSHC, or equivalent qualifying payment — and the offset phases out as rebate income rises above certain levels. The effective threshold figures above represent the maximum available to a fully eligible recipient.

The practical implication for many retirees is significant. Meaningful investment income outside super can be received entirely tax-free once SAPTO applies. A couple with $50,000 of combined investment income from shares, term deposits, or managed funds may pay no personal income tax at all, provided the income splits roughly evenly and both partners qualify for SAPTO.

Dividends and franking credits

Australian dividends from companies that have already paid corporate income tax come with franking credits — representing the tax paid at the corporate level before the dividend was distributed. For a fully franked dividend from a company taxed at the standard 30% rate, a cash dividend of $70 comes with a $30 franking credit, and the assessable amount is the grossed-up $100. You include the $100 in taxable income and receive the $30 franking credit as a tax offset against your personal tax liability.

For retirees in the low-tax brackets, franking credits are particularly valuable because they are refundable. If your personal income tax is zero — because you're at or below the SAPTO-enhanced threshold — the franking credit is paid to you as a cash refund rather than simply reducing a tax bill that doesn't exist. The corporate tax effectively flows through to you in cash. This refundability is a distinctive feature of the Australian imputation system that does not exist in most other countries, and it makes Australian shares with high franking ratios structurally advantageous for low-income retirees.

Capital gains tax

Capital gains on investments held outside super attract the 50% CGT discount when the asset has been held for more than twelve months — meaning the taxable amount is half the actual gain. For assets held twelve months or less, no discount applies and the full gain is assessable. The discounted gain is added to other taxable income and taxed at marginal rates.

For retirees with substantial embedded gains in shares or property accumulated over many years, the timing of realisation has a direct impact on the tax outcome. Selling in a low-income year — where your other assessable income is well below the SAPTO threshold — means the discounted gain may be absorbed entirely within the tax-free zone. Spreading large realisations across multiple years keeps each year's gain within lower brackets. A couple selling jointly-held assets in a year with otherwise modest income may produce a negligible or zero net tax outcome once the 50% discount, joint splitting, and SAPTO are combined. This is one of the more accessible retirement tax-planning opportunities and one that most retirees with pre-retirement share portfolios have not systematically used.

Interest income

Interest from bank accounts, term deposits, and bonds is fully assessable as ordinary income. There is no discount and no special offset beyond the personal threshold and SAPTO. For retirees with significant cash holdings earning meaningful interest, this income contributes to taxable income at marginal rates. Where the super balance is within the transfer balance cap and there is room to restructure, holding cash and term deposits within an account-based pension — where retirement-phase earnings are tax-free — typically produces a better after-tax outcome than holding equivalent cash outside super, provided liquidity and accessibility requirements are met.

Rental income

Rental income from investment property is fully assessable after deducting allowable expenses: property management fees, maintenance and repairs, council rates, water charges, insurance, depreciation on eligible assets, and interest on the investment loan. The net rental figure, after deductions, is added to other taxable income at marginal rates. For retirees with significant rental income, this is often the largest contributor to non-super assessable income, and the interaction with the SAPTO threshold determines how much personal tax is payable.

Joint ownership and couples

Investments held in joint names split the income for tax purposes — each partner declares half the income in their own return. For couples where both partners are below their respective SAPTO-enhanced thresholds, joint ownership can keep both in tax-free territory across a combined income that would be taxable if concentrated in one partner's name. A couple's portfolio generating $55,000 per year, held jointly, produces $27,500 per partner — both well within the $31,888 effective threshold. Held in one partner's name, $55,000 would exceed that partner's single threshold and attract tax. Joint ownership does not require complex structuring; for couples who have built assets together, it is one of the most accessible tax levers available.

Investment structures

For most retirees, the practical structure is direct or joint personal ownership outside super, combined with super for the tax-advantaged retirement phase. Family trusts can distribute income across multiple beneficiaries and may suit higher-net-worth clients with specific succession or structuring requirements, but they carry ongoing legal and accounting overhead. Private investment companies attract corporate tax — 25% for base rate entities with aggregated turnover below $50 million, 30% otherwise — and for retirees holding assets in their own names with access to SAPTO and franking credit refunds, a company structure is rarely more tax-efficient. Trusts and companies are typically worth considering only where there are specific reasons beyond tax minimisation alone.

Managing these levers deliberately

The framework rewards deliberate structuring. Using the SAPTO-enhanced threshold each year — structuring income so neither partner wastes their effective tax-free zone — is the baseline. Maximising franking credit refunds by holding Australian shares with high franking ratios adds cash returns that passive holders often overlook. Timing capital gain realisations to years with low other income, and spreading sales across multiple years to stay within lower brackets, can materially reduce tax on decades of accumulated gains. For couples, reviewing the ownership split of major assets — and ensuring joint ownership is properly documented — is a straightforward step that has no ongoing cost once in place.

Retirees with material non-super investments who have not reviewed the structure of those investments against the current threshold figures are likely leaving tax savings unclaimed each year. An accountant can run the specific numbers; a licensed financial adviser can coordinate the investment and super structure to make the framework work cohesively rather than in isolation.

Sources

• ATO — Tax rates (Australian resident)
• ATO — Seniors and pensioners tax offset (SAPTO)
• ATO — Refund of franking credits for individuals
• ATO — CGT discount
• ATO — Company tax rates 2025–26