Sponsorship of community events and teams – is it tax deductible?

Many businesses find that sponsoring a local team or an event can be a great way to build goodwill in the community and to give their business greater visibility.

If you provide sponsorship for a team or community event, it may be tax deductible, depending on the type of sponsorship and whether your business is being promoted.

For a sponsorship to be fully deductible, Inland Revenue must be satisfied that the expense is in connection with advertising for your business and is not a private expense on a recreational pastime. For the expense to be deductible, your business must be promoted in some way, and the recipient of the sponsorship must also benefit from the expenditure.

As an example, sponsoring the local rugby league team’s new uniforms may be fully deductible for you if, in return, the team agrees to display your business logo on the uniforms.

If your business sponsors the local Gardens and Arts Festival, and the festival agrees to advertise your business in all media publications and selected social media, that may also be a fully deductible expense.

If the expenditure is of a capital nature, such as a permanent neon sign or billboard, it is probably not fully deductible. And it will need to be capitalised and depreciated.

Sponsorships are a recognised way of promoting your business while also making a positive contribution to your community. Let us know if you are considering sponsoring a team or a community event. We can discuss the tax implications.