How are investment returns taxed?

Investment returns are taxed based on the type of investment and the nature of the income generated. This is why the answer indicating that they may include Capital Gains Tax or Income Tax depending on the investment type is correct.

For example, if you sell an asset such as stocks or property for more than you originally paid for them, you would typically incur a Capital Gains Tax on the profit. Conversely, if you earn dividends or interest from investments like stocks or bonds, these returns are usually taxed as ordinary income. The tax treatment can vary significantly based on whether the gains are capital in nature or considered regular income from investments.

This nuanced approach to taxing investment returns reflects the tax code's design to differentiate between types of income, acknowledging variations in investment characteristics.