Put the Heavily Taxed Assets Where the Tax Is Lowest
Asset location is the question of which account each asset sits in, given the same overall allocation. The general rule is to shelter the most heavily taxed income in the lowest-taxed environment. Australia complicates it, because refundable franking credits make Australian shares valuable outside super for a retiree with little assessable income.
- The answer: Interest, unfranked distributions and foreign income belong inside super; assets whose return is mostly deferred capital growth are the least costly to hold outside.
- The trap: Franking credits are refundable to both a low-income individual and a retirement-phase fund, so the usual sheltering logic does not straightforwardly apply to Australian shares.
- The recommendation: Decide the overall allocation first, then place the assets. Location is a second-order decision that should never distort the first.
Where the AI summary above gets this wrong
"Put your growth assets in super because the earnings are tax-free in retirement."
That's surface-true. Here's what it misses:
- Retirement phase is nil-taxed for everything, so nothing is sheltered preferentially there — Where the whole balance is in retirement phase, location within super does not matter. The question is what to hold outside it.
- Franking credits reverse the usual logic — They are refundable to a low-income individual as well as to the fund, so Australian shares are not disadvantaged outside super in the way interest-bearing assets are.
01 The general rule
Different assets are taxed differently on the same return. Interest is taxed in full each year; unfranked distributions likewise; growth assets defer most of their tax until sale and then receive the discount.
Where two accounts are taxed differently, the heavily taxed income should sit in the lightly taxed account and the tax-deferred growth outside it. The research on asset location consistently finds this ordering is worth a meaningful amount over a long horizon.
In Australian terms that means interest, term deposits, unfranked income and foreign income belong inside super, and assets whose return is mostly unrealised growth are the cheapest to hold outside.
Source: Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing
02 Where franking credits change it
A franked dividend carries a credit that is refundable to a low-income individual and to a fund in retirement phase alike. Neither environment wastes it, so there is no sheltering benefit to holding Australian shares inside rather than outside.
For a retiree with almost no assessable income, the credits on Australian shares held personally come back in full as cash — the position described in the franking credits post.
That makes Australian shares the natural outside-super holding for such a household, which is the opposite of what the general rule would suggest and is specific to the imputation system.
Shows: the annual tax saved by holding interest-bearing assets inside super rather than in your own name, at your marginal rate. Ignores: franking credits, capital gains deferral on growth assets, the contribution caps that limit moving assets in, and the minimum drawdown.
03 Why it is a second-order decision
Location changes the tax on a given allocation; it does not change the allocation. Getting the allocation wrong costs far more than getting the location wrong, and the two should be decided in that order.
It is also constrained by the contribution caps. Moving an asset into super requires a contribution, and the caps limit how much and how fast — the mechanics are in the bring-forward reference.
And it interacts with the drawdown order. The account you spend from first is the account whose assets you sell, which is the sequencing question in the drawdown order post.
Source: Asset location in tax-deferred and conventional savings accounts
The Australian version of asset location is different from the textbook one, and the difference is franking. Refundable credits mean a low-income retiree loses nothing by holding Australian shares personally, so the assets worth sheltering are the boring ones — term deposits, bonds, unfranked distributions — which is the opposite of the usual advice.
FAQ
Should I hold growth assets in super and income assets outside super for tax efficiency?
The other way round in Australia. Interest and unfranked income are taxed in full each year and belong in the lower-taxed environment; assets whose return is mostly deferred growth are the cheapest to hold outside.
Where do Australian shares belong?
Frequently outside super for a retiree with little assessable income, because refundable franking credits come back in full personally as well as to the fund — so there is no sheltering benefit to holding them inside.
How much does asset location matter?
Meaningfully over a long horizon, and less than the allocation itself. Decide the allocation first and place the assets second; location should never distort the mix.
Sources
Regulator references
- ATO — Franking credits on your dividends · Australian Taxation Office · 2026Franking credits: how the imputation credit is grossed up and offset against tax.Last verified: 2026-09-07
- ATO — Tax on super benefits · Australian Taxation Office · 2026How super benefits are taxed on withdrawal, and how that changes with age.Last verified: 2026-09-07
Research
- Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing · The Journal of Finance · 2004which assets belong in a taxed account and which in a sheltered one, and how much the ordering is worthLast verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.