Conor earns income from Treasury Bond; the income will be liable to:

• A. (ii) and iii) only
• B. (i), (ii) and iii.
• C. (i) only.
• D. (i) and iii only.

Answer: (B)

The key idea is that income from a Treasury Bond can face multiple tax effects. The coupon payments are interest income and are typically taxed as ordinary income. If the bond is sold before maturity, any gain or loss on the sale is usually taxed as a capital gain or loss. In some tax systems, there may also be a withholding tax on interest payments for non-residents or under certain circumstances. Because all of these tax liabilities can apply in the right circumstances, the correct choice is the one that includes all three types of tax.