Sponsorship is the financial or in-kind support of an activity, used primarily to reach business goals. Sponsorship is not advertising (which is a quantitative medium), but qualitative whereby it promotes a company in association with the sponsee.
Sponsorship can achieve these three business goals:
- Enhancing image and customer attitudes,
- Increasing sales, and
- Creating positive publicity and heightened visibility.
ATO ID 2005/284 deals with deductions and expenses in relation to sponsorship. If a taxpayer provides sponsorship in the belief that the exposure from that sponsorship will benefit the business in the form of advertising and will generate future income then the expenditure should be deductible. This will be the case even if it turns out that the sponsorship didn’t generate any future income.
So, for example, if a plumbing company sponsored the local netball team with uniforms and equipment, including advertising on the uniforms and at games, that sponsorship would be deductible.
The exception to this will be where the sponsorship is deemed to be of a capital, private or domestic nature. This will often be the case where the sponsorship involves sponsoring a related party for their hobby. For example, a plumbing company sponsoring the plumbing company owner’s yacht.
In TD 92/192 the ATO advised that the cost of hiring corporate boxes at sporting events are deemed 95% entertainment and 5% deductible advertising.