The de minimis tax rule might sound like a footnote in the world of Australian investing, but in 2025, it’s playing a bigger role than ever in how gains from discounted securities are taxed. Whether you’re dabbling in discounted bonds, managing a portfolio of fixed-income assets, or simply keen to minimise your tax bill, understanding how the de minimis rule works could save you from costly surprises at tax time.
What Is the De Minimis Tax Rule?
In Australia, the de minimis tax rule applies to certain discounted financial instruments—typically zero-coupon or deep-discount bonds. The rule determines whether the discount at which you acquire a bond is treated as a capital gain (and potentially eligible for concessional tax treatment) or as ordinary income (taxed at your marginal rate) when you dispose of the bond or it matures.
In essence, the de minimis threshold is the tipping point: if the discount is less than a specific amount, the gain is taxed as a capital gain; if it exceeds the threshold, the gain is taxed as ordinary income.
- De minimis threshold: The cut-off for when the discount is considered ‘small enough’ to qualify for capital gains tax (CGT) treatment rather than ordinary income.
- Applies to: Discounted bonds, zero-coupon bonds, and other deep-discount securities.
How Is the De Minimis Amount Calculated?
The de minimis threshold calculation is based on the face value of the bond, its purchase price, and the time remaining until maturity. The Australian Taxation Office (ATO) uses a mathematical formula to determine whether the discount is above or below the de minimis level:
- Calculate the annual de minimis threshold: 0.25% of the bond’s face value for each full year to maturity, multiplied by the number of years to maturity.
- Add this amount to the bond’s purchase price.
- If the bond’s redemption value (face value) is less than or equal to this sum, the discount is considered de minimis and is subject to CGT. If the face value exceeds this sum, the discount is treated as ordinary income.
Formula:
De minimis threshold = Purchase price + [0.25% × Face value × Years to maturity]
Example (2025 values):
- Face value: $10,000
- Purchase price: $9,500
- Years to maturity: 4
- Threshold: $9,500 + (0.25% × $10,000 × 4) = $9,500 + $100 = $9,600
Because the face value ($10,000) exceeds $9,600, the discount ($500) is above the de minimis threshold and will be taxed as ordinary income upon maturity or sale. If the face value had been $9,600 or less, the $100 discount would be taxed as a capital gain.
Why Does the De Minimis Rule Matter in 2025?
With inflation still impacting interest rates and bond yields in Australia, more investors are looking at discounted bonds and fixed-income strategies. The ATO reaffirmed its approach to the de minimis threshold in its 2025 guidance, clarifying how deep-discount bonds and similar securities are taxed. Ignoring the rule could mean paying higher taxes than necessary, or worse—facing compliance headaches if you misreport your gains.
Key points for investors this year:
- ATO focus: The ATO has increased review of discounted securities and their tax treatment in 2025, especially with the popularity of exchange-traded bond funds and secondary market bond trading.
- Record-keeping: Investors need to keep precise records of purchase dates, prices, and bond terms to accurately apply the de minimis calculation.
- Tax planning: Understanding whether your gain is taxed as capital or income can impact your after-tax return and influence investment decisions.
Real-World Example: How the Rule Plays Out
Consider Sarah, an Australian investor in 2025 who buys a zero-coupon corporate bond for $9,400, with a $10,000 face value and a five-year maturity:
- De minimis threshold = $9,400 + (0.25% × $10,000 × 5) = $9,400 + $125 = $9,525
- Face value ($10,000) exceeds the threshold ($9,525), so the $600 discount is taxed as ordinary income on maturity or sale.
- If Sarah had bought the bond for $9,700, the threshold would be $9,700 + $125 = $9,825. Now, the discount ($300) is below the threshold and would be taxed as a capital gain, potentially eligible for the 50% CGT discount if held for over a year.
This subtle difference could mean hundreds of dollars in extra tax paid (or saved), depending on how the rule is applied.
Takeaways for Australian Investors
The de minimis tax rule isn’t just a technicality—it’s a key detail that can shape your investment strategy and after-tax returns in 2025. With more Australians diversifying into fixed-income and discounted securities, knowing exactly how your gains will be taxed is essential.
- Always calculate the de minimis threshold before buying discounted bonds.
- Check the latest ATO guidance, as thresholds and interpretations may shift year to year.
- Factor tax treatment into your investment decisions—sometimes a smaller discount with capital gain treatment beats a bigger discount taxed as income.
