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

Understanding Sponsorship Tax Deductions

For a sponsorship to be fully deductible, Inland Revenue must be satisfied that the expense is connected with advertising for your business and is not a private expense associated with a recreational pastime.

To qualify for a deduction:

• Your business must be promoted in some way.
• The recipient of the sponsorship must also benefit from the expenditure.

Examples of Tax-Deductible Sponsorships

For example:

• Local Rugby League Team
  Sponsoring the team’s new uniforms could be fully deductible if the team agrees to display your business logo on the uniforms in exchange.
• Local Gardens and Arts Festival
  If your business sponsors the festival and the festival agrees to advertise your business across media outlets and social channels, this may also qualify as a fully deductible expense.

When Sponsorship Expenditures Are Not Fully Deductible

If the sponsorship expense is of a capital nature—such as a permanent neon sign or a billboard—it is likely not fully deductible. Instead, it would need to be capitalised and depreciated over time.

Why Sponsorships Are Beneficial

Sponsorships are not only a recognised way of promoting your business but also a means of making a positive contribution to your community. Supporting local initiatives fosters goodwill and strengthens your brand’s presence in the community.

Need More Guidance?

Let us know if you’re considering sponsoring a team or a community event. We can discuss the tax implications and help you navigate the details to ensure everything is correctly managed for your business.