The Inland Revenue Department is revising its understanding of what constitutes a tax-deductible expense for sponsorship.
- Sponsorship can be either in the form of money, products or services.
If you want to claim a deduction, there needs to be a sufficient connection between the expenditure and the earning of business income. So if you feel you would like to contribute to your favourite sports team, you have to get good value in return otherwise your expenditure is not tax deductible.
- The amount of the expenditure could be relevant to the deductibility if “the parties are associated”. This means if your company is sponsoring your favourite sports team or a relative’s activity, there is an association between you and the company, which tends to suggest the expenditure is not genuinely advertising for the business but rather for your personal benefit.
- Your purpose at the time of incurring the cost is the key factor.
- You need to be careful if you are supplying trading stock. If you supplied trading stock at less than market value, Inland Revenue says you are making a taxable profit on the difference between market value and the cost at which you supplied the goods.
- If you provide the services of one of your staff, the salary paid is tax-deductible.
- If you acquire the use of a valuable asset as part of the sponsorship but you don’t get ownership of it, the related sponsorship cost is tax deductible.
