Because of that, many of us frequently
wonder about this:
Is my company or business eligible for tax deduction when I provide sponsorships?
Well, it would depend on whether your sponsorship can be considered “marketing and promotional expenses.”
You may say that the act of giving out the sponsorship is a form of promotion for your business, but it has to be made obvious that you
are receiving something in return for that particular sponsorship. If you do not get anything back in return, then it is not considered a promotion.
What is promotion?
Public
Ruling No. 4/2015 Entertainment Expense paragraph 3.8 defines promotion as an activity to inform and to offer a product or service which is to be marketed to customers, dealers and distributors but excluding suppliers and an activity undertaken to advertise the sale of the product or service.
If you say you are spending money on sponsorship and calling it a promotion, well, that could fall under promotional expenses. Promotional expenses which do not have an entertainment element are allowed a full deduction of 100% under section 33(1) of the Income Tax Act (ITA) 1967.
What Does That Mean?
If you were to contribute cash to someone with no benefit in return, then there would be no deduction. The tax treatment for that expense is that it would be added back during tax computation. It is because if you are not
getting anything in return, then the expense was not wholly and exclusively incurred in the production of gross income, thus not satisfying s.33(1) ITA 1967.
Now, let’s say you sponsor your distributor’s annual dinner. You then put up a booth to promote your goods and services. In the booklets, you also insert your advertisement. In addition, you put up banners at the dinner venue too. In this situation, you have given a cash contribution, but in exchange, you get some advertisement for your business. This would be classified as “marketing and promotional expenses” and would fall under s.33(1) ITA 1967,
which means that you can get a full (100%) tax deduction.
