De Minimis Tax Rule

What is the ‘De Minimis Tax Rule’

The De Minimis tax rule is a rule that states that capital gains tax must be paid on a bond if the bond was purchased at a discount to the face value in excess of a quarter point per year between the time of acquisition and maturity. The reason for the capital gains tax is that the bondholder gains on the difference between the price paid and the price received at maturity, which is considered a capital gain.

Explaining ‘De Minimis Tax Rule’

To determine whether a bond is subject to this tax, calculate the amount of full years between the discounted bond’s purchase date and the maturity date and multiply this by 0.25. Subtract the calculated amount from the bond’s par value. If this amount is above the purchase price of the discount bond, the purchased bond is subject to capital gains tax.

Further Reading

  • State Sales and Use Tax Jurisdiction: An Economic Nexus Standard for the Twenty-First Century – [PDF]
  • New De Minimis anti-Abuse Rule in the Parent-Subsidiary Directive: Validating EU Tax Competition and Corporate Tax Avoidance, The – [PDF]
  • Options for taxing financial supplies in value added tax: EU VAT and Australian GST models compared – [PDF]
  • Taxation of the Digital Economy: Adapting a Twentieth-Century Tax System to a Twenty-First Century Economy – [PDF]
  • The Level of Amber Box Policy Support for Agricultural Policy in China: Comparison of the Consistency of WTO Rules – [PDF]