The shares of Sour Corp are owned by Mr. Tusk. The shares have a PUC and adjusted cost base of $1,000 and a fair market value of $10,000. Mr. Tusk wants to effect a reduction in the value of the common shares and has caused the corporation to undertake a capital reorganization. The corporation will exchange the common shares for the following package of consideration:

Cash (at FMV) $ 100

Preferred shares (at FMV) 5,900

Common shares (at FMV) 4,000

Total $10,000

Required: Show all calculations whether or not necessary to the final answer. Determine the tax consequences of Section 86 to Mr. Tusk as a result of the capital reorganization on the following:

A. Issuance of New Shares (15 marks)

B. Redemption of Old Shares (15 marks