Hum Along Records Ltd., a Canadian-controlled private corporation, has 5,000 outstanding preferred shares with a redemption and current fair market value of $6,000 and a paid-up capital value of $5,000 in total. The balance in its capital dividend account is $800. The company has decided to redeem the preferred shares at their fair market value and to properly elect a capital dividend on all preferred shares. As a result, a part of the deemed dividend on the redemption of the preferred shares 'will be a capital dividend.

REQUIRED

What are the tax consequences to Mr. Hal Little who is unrelated to other shareholders and who owns 500 of the preferred shares which cost him $1.00 per share?