Concepts
Sponsorship
Sponsorship is a payment to an organisation or event in return for promotion or other benefits, and it is generally a taxable supply by a registered recipient.
Sponsorship is a business arrangement in which a sponsor provides money, goods or services to an event, club, team or organisation, and the sponsored party provides something in return, usually advertising or promotion. Because the sponsor receives a benefit, the payment is consideration for a supply and not a gift. This is the core distinction between sponsorship and a donation.
When the sponsored party is registered for GST, or required to be, its supply of sponsorship benefits is generally a taxable supply. The sponsored party should issue a tax invoice that shows GST of one-eleventh of the total price. A club, school or charity that is not registered for GST does not charge GST, but the arrangement is still a commercial one for the sponsor. Sponsored parties that are non-profit organisations only need to register at a turnover of $150,000, so many small clubs fall under this level.
For the sponsor, the sponsorship cost is generally a business expense when it is incurred to promote the business, such as having a logo on a jersey, a banner at a ground or name recognition in a program. If the sponsor is registered and holds a tax invoice for purchases over $82.50 including GST, it can claim an input tax credit for the GST in the price. The expense can usually be deducted for income tax, provided it has a business purpose and is not private or capital in nature.
A common issue is that sponsorship is not always in cash. Where a sponsor provides goods or services instead, for example a free vehicle or catering, the sponsored party is generally receiving non-cash consideration, and the sponsor is generally making a supply for which GST may be payable on the market value. Each side should record the value and consider whether tax invoices are needed. Barter-style arrangements are easy to overlook but have the same GST implications as cash.
Sponsorship should be distinguished from mixed payments. Sometimes a payment includes a genuine gift in addition to a modest benefit, or the sponsor gets only a token acknowledgment. If the recipient gives nothing of real value in return, the payment may be a gift rather than a sponsorship. Where there is a mix, parties should decide in advance how much is for the benefits and how much is a gift, and document it in the agreement or on the invoice.
Frequent mistakes include assuming all sponsorship of charities is a donation, failing to ask for a tax invoice, and claiming credits for GST that the recipient did not actually charge. Sponsored parties sometimes forget to include sponsorship in the sales they report on their BAS, or to count it towards their GST turnover when deciding if they must register.
Sponsorship arrangements vary widely, and the right treatment depends on the facts. This is general information only, so please confirm your situation with the ATO or a registered tax professional.
Worked example
A registered plumbing business sponsors a registered community football club for $2,200 including GST in return for signage and uniform logos. GST in the price is $2,200 divided by 11, which is $200. The plumber claims a $200 credit and deducts $2,000 for income tax. The club reports $2,200 as sales and $200 as GST on sales on its BAS.
Practical tips
- Ask for a tax invoice for any sponsorship over $82.50, and check that it shows the GST if the recipient is registered.
- Document what the sponsor receives in return, since the benefits are what make it a taxable supply and not a gift.
- If you provide goods or services as sponsorship instead of cash, record their market value for both GST and income tax.