The terms of the exclusion to which you refer are:
(e) if the registered operator of an aircraft is an individual—an operation of the aircraft:
(i) that involves the carriage of that individual; and
(ii) involves the carriage of other passengers; and
(iii) for which no payment or reward is made or given in relation to the carriage of the other passengers or cargo.
I note the word "other" in (ii). The only way to give that word any operation is to interpret (i) as meaning the individual is also being carried as a passenger.
I say the solution to the conundrum you perceive is that if the PIC is the only POB, the flight can still satisfy the plain words of the definition of 'cost-sharing' flight. There is no element of that definition that turns on the identity or legal personality of the registered operator of the aircraft. And, as I keep saying, no words in the definition say that the flight is not a cost-sharing flight if the PIC meets the entirety of the direct costs of the flight. Remember: The PIC is also POB for the purposes of the definition.
But I agree with the overarching point about this stuff being 'badly' written, in the sense that, decades in, CASA is still reacting to HSMs caused by outcomes that CASA did not expect.