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Corporate Sponsorship – Understanding the Tax Implications
As accountants and business advisers, we help clients make the most of their business expenditure from a tax point of view, and a number of clients ask us how corporate sponsorship affects their tax position, both when they’re considering sponsorship for a sporting club (or similar), and when they’re offering sponsorship opportunities for other businesses. Fortunately, there are a few great ways to ensure your sponsorships are tax-efficient; as well as some pitfalls to avoid.
Optimising Entertainment for Corporate Sponsorship & Staff Events
Many businesses take the opportunity to sponsor a sports team, whether that’s through an employee connection, their kids play there, or the club is local to the business. Sponsorship arrangements are defined as an organisation undertaking a fundraising activity, receiving money, and subsequently offering advertising, signage, naming rights, or some other type of benefit of value to the sponsor. Generally speaking, sponsorship fees can be claimed as a tax deduction to the extent it represents advertising that is aimed at generating future income.
Note – it is important to understand the distinction between a donation and a sponsorship. Donations are not tax deductible unless the organisation to which you are donating is registered as a deductible gift recipient (DGR) – which most sporting clubs are not.
Making Corporate Sponsorship Opportunities for Other Businesses More Attractive
If your business is offering sponsorship opportunities to other businesses, there are ways you can package these up to make them more attractive to prospective sponsors. Sporting clubs are the big players in this area, with sponsorships comprising a large percentage of their income, and lots of opportunities to display their sponsors’ branding.
Some local examples include WA Sporting Car Club, which offers sponsorship packages for their racing events; and Joondalup Indoor Beach Volleyball, which hosts a variety of competitions throughout the week, giving exposure to their various sponsors. If you’re thinking about offering sponsorship opportunities to bring additional revenue into your business, packaging up the offering in a way that is attractive to businesses and their accountants can be the difference in getting a deal over the line.
With the Melbourne Cup upon us, it is a timely reminder that some sponsorship packages can include ‘incentives’ such as a corporate box (at a sporting event), including meal / beverage packages. In this case a distinction must be made between the value of advertising activities (ordinarily deductible) and ‘incentives’ (non-deductible and potentially comes with Fringe Benefits Tax ‘FBT’ implications). The good news is that there are several concessions that can be used to manage FBT, if the package is structured correctly.
This can lead to the sponsor increasing exposure to the business whilst maximising any available tax deductions, which in our view is a win-win!
How MP+ Can Help
If you’re thinking about sponsorship and how it might affect your tax position, your accountant or Client Manager at McKinley Plowman is your best point of contact to discuss. If you’re not yet a client, please do not hesitate to contact us via our website or call us on 08 9301 2200 to speak to an accountant.
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