http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/68559/index.do 
Lavoie et al. v. The Queen (March 24, 2014 – 2014 TCC 68) was a very factually complex case involving an amalgam of shareholder benefits, personal deductions, input tax credits, penalties, etc.
The court summarized the background as follows:
[3] Mr. Lavoie was the sole witness for the Appellants. While he presented as a forthright, knowledgeable and sincere witness, some of his actions suggest he got greedy in claiming expenses, the deduction of the cost of his wedding being an obvious example. University educated, he worked as an employee in the agri‑business industry for a number of years until 2001, when he established Ceilidh as his own agri-business.
[4] Ceilidh had a number of clients but foremost was York Points Farms, what Mr. Lavoie described as a high-health farming business producing purebred swine. The swine provided breeding stock and ultimately swine to swine producers both nationally and internationally for production in the food industry. Ceilidh served as a broker in the industry, not just with respect to the swine but also with respect to equipment, feed and other related products connected to the swine industry.
[5] Mr. Lavoie’s home base was in the Halifax area, though he was required to travel throughout the Maritimes visiting swine producers, often in Prince Edward Island. He estimated he travelled 70,000 kms a year. It was also necessary to show potential clients of the swine exporters the Canadian farming operations. Part of Mr. Lavoie’s job as a broker, through Ceilidh, was to entertain foreign clients. This involved visits to the farms as well as presentations at his office. Mr. Lavoie provided a detailed explanation of this aspect of his business.
[6] In 2005 and 2006, Mr. Lavoie built a three bay garage at his home in Nova Scotia to serve as his office as well as storage for products involved in the business. Up to that point, he had used part of his home as a home office. He indicated that some of the expenses in dispute, such as fencing and landscaping were to ensure the security of the premises for business purposes as well as ensuring the attractiveness of the premises to impress potential clients.
[7] In 2006, Mr. Lavoie bought the Cottage in PEI initially to serve as a residence for the Lavoie family. However, Mr. Lavoie’s wife coincidentally received a job promotion that required the family to remain in Nova Scotia. Mr. Lavoie testified that he decided to market the PEI Cottage as a vacation property and also to use it for his business guests. He produced a one-page fax advertising “Cottage/business accommodation available”. This was sent to some of his wife’s co-workers and some people they knew. There were no takers in 2006 and only 10 nights were rented out to vacationers in 2007. Mr. Lavoie indicated, however, that business guests used the Cottage for approximately 40 nights in 2007 and he would also stay there when on business in Prince Edward Island and would bill Ceilidh for its use. He suggested he used the property approximately 100 times for business purposes during the period in question.
It is probably not too useful to review each aspect of this decision since many points are commonly encountered in small corporation cases. Two aspects of the decision however merit attention.
The first is the court’s assessment of the use of the Cottage property:
[27] I turn now to the issue of the disallowed losses from the PEI Cottage. The Respondent argues the Cottage was not a source of income as it was used primarily by Mr. Lavoie and family and friends in 2006 and 2007.
[28] I find the Cottage had three uses: as a recreation property for the Lavoie family, as an accommodation for business visitors in connection with Ceilidh’s business, and as accommodation for Mr. Lavoie when on business in Prince Edward Island, which was often. Mr. Lavoie testified he treated the Cottage as a business. During the period in issue, Mr. Lavoie’s uncontradicted evidence was the Cottage was used approximately 170 days, only 10 of which were solely personal use. Mr. Lavoie testified that Ceilidh would pay him rent for his use of the Cottage on business trips. I believe the Appellant that the Cottage was used primarily for business purposes and therefore, with no evidence challenging how the losses were calculated, I allow them in full. Having reached the conclusion the Cottage was part of a commercial activity, and again with no challenge to the ITC numbers, I allow the GST Appeal, adjusted to take into account the GST required to collect and remit as originally filed.
Thus the court rejected the knee jerk tendency to treat any cottage property as a purely personal property and instead placed it in the context of the evidence, which it found credible.
Perhaps more important is the court’s treatment of gross negligence penalties assessed against Mr. Lavoie and his company:
[30] Given my finding on the GST Appeal, it follows there are no penalties against Mr. Lavoie in that regard. With respect to the gross negligence penalties in Ceilidh’s income tax Appeal, the Respondent submitted that, as a well-educated businessman, Mr. Lavoie should have known the disallowed expenses were in fact personal expenses. Mr. Lavoie offered explanations for several of the expenses claimed, explanations I have concluded have not been sufficient to justify the deduction of all of the expenses. It does not automatically follow, however, that he was grossly negligent in claiming them. This is unlike the Fiscal Arbitrator cases (for example see my Reasons in
Torres v Her Majesty the Queen) where there is no basis for claiming the losses claimed in those cases. Here, a small business gets advice, albeit bad advice, that because some business associates attend your wedding, you can deduct the cost of the wedding. It is naïve and perhaps greedy to believe the wedding is truly a business expense. As stated earlier, it is often not clear in the mind of the person running a small business just how much or little connection to the business is required to render an expense a deductible expense. I accept that with many of Ceilidh’s disallowed expenses (fencing around the house for example), Mr. Lavoie was pushing the envelope, but conclude he was not grossly negligent in doing so. Simply because he has not proven to me that, on balance, this was a legitimate business expense, does not mean that there is no arguable basis whatsoever on which to attempt to deduct it. There is a fine line between the denial of an expense and the finding of gross negligence in claiming the expense in the first place.
[31] There are, however, some items that are so inherently personal that the circumstances can only be viewed as grossly negligent if a taxpayer attempts to write them off. One’s wedding, jewellery for one’s wife and video games for the kids (where there is no corroborating evidence the latter two items were received as remuneration), are such expenses. Mr. Lavoie should have known better. I find gross negligence penalties attach to such expenses.
[32] Finally, with respect to the gross negligence penalties assessed against Mr. Lavoie personally, I likewise conclude the penalties should apply only to the benefit represented by the wedding, the jewellery and the video games expenses.
[Footnote omitted]
In light of the mixed success, the court made no award of costs.
Comment: This decision evidences a refreshing and balanced approach to the issue of gross negligence penalties applied to a complex set of facts.