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Within a single financial year, if I make $500,000 from the stock market and I purchase a rental property with that profit, am I taxed when the property is sold (in a future financial year) or is the property a different asset class and I am still obligated to pay tax on the the stock investment profit?

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You are due to pay capital gains tax whenever you sell an asset for a profit.

If you made a profit of $500k on the sale of share you are liable to pay capital gains tax on those profits. If you then use those profits to buy another asset, whether that is more shares or a property, it has nothing to do with the capital gains event created when you sold the first shares.

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As I understand it, you are asking whether the $500,000 earned from the stock market can be treated as the same "asset class" as the property purchase, with the implied objective of treating the property purchase as a tax deduction against the stock market gains.

The ATO lists various allowable deductions such as work-related expenses, gifts, superannuation and so on, with each category having its own set of rules.

Unless you can show that your expense is an allowable deduction against the income, you can’t treat the expense as a deduction against the income.

I doubt you’d be able to justify the property purchase as an allowable deduction against stock market gains, but you should consult a qualified financial advisor as there may be property-related deductions you can claim against your rental income.

In the ordinary scheme of things, the property purchase is a capital purchase but it isn't a capital gain or loss until you sell it, so it doesn't affect the tax you need to pay on your stock investment profit.

  • How is buying a property ever going to be an allowable deduction against the sale of shares? – Victor Sep 8 '18 at 23:02
  • @Victor I’m not an accountant, but it seems that if both were treated as trading stock, there may be different considerations. In any case, the gist of my answer was that if they wanted to offset gains against expenses, the expenses must be ‘allowable deductions’ as defined by the ATO. – Lawrence Sep 9 '18 at 5:12
  • How is buying a property trading stock? Again, what is buying a property got anything to do with allowable deductions for profits from selling shares? The two are totally unrelated. – Victor Sep 9 '18 at 20:05
  • @Victor the link in my earlier comment gave one example. Here’s a link to a more explicit one: property development. By the time property is treated as “trading stock” (i.e. goods bought for trading) and hence on revenue account instead of capital account, it’s probably gone beyond personal finance and into the commercial finance arena, though. – Lawrence Sep 9 '18 at 23:34
  • @Victor As I expressed before, the principle I was pointing to was that the only expenses that can be deducted are those allowable by the ATO. I’m not trying to say that in the OP’s case, a property purchase can offset what was earned from shares. Please stop harping on a point that I’m not making. – Lawrence Sep 9 '18 at 23:45

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