If you own a business, chances are you get requests to sponsor events and teams. We want to give you our thoughts on what to sponsor, and when to say ‘no.’
The first thing you want to do is determine whether there’s a business case for the sponsorship - that means deciding if spending this money will help generate income for your business. If so, the cost can be deducted by your corporation as a promotion expense, like advertising. Essentially, as long as the expense is reasonable and is incurred to generate sales, it’s a tax deduction.
THE DEAL ON DONATIONS
If there’s no benefit to the sponsorship, you may still be able to get a donation write-off if the organization you are sponsoring has charitable status and issues an official donation tax receipt. However, there isn’t a significant tax difference between a donation tax receipt and a business expense, like advertising.
If your business won’t benefit from the sponsorship and you want the full donation receipt, I would consider sponsoring personally, rather than through your corporation. This will eliminate any suspicion of benefit. Plus the tax benefit is usually better at the personal level.
THE POWER OF PROMOTION
When you sponsor a good cause, it should generate some awareness or goodwill for your company. If your business receives signage, banners, or public recognition as a major sponsor, this is considered a benefit to the business. The fair market value of the benefit cannot be eligible as a donation, even if the organization is a charity. However, it would still qualify as a business expense.
There are fairly strict rules around what counts as a benefit. Anything over and above a simple shout out alongside all the other donors, could be considered a benefit. Any special recognition as a major sponsor or use of a logo could be considered a benefit. If the fair market value of the promotion benefit cannot be determined then the donation amount cannot be determined, and no tax receipt can be issued.
GIVE THE GOODS
Some clients ask if they can donate some sports equipment to a team or prizes for a silent auction. You can do it, and it's treated the same as a cash donation as long as you can prove the fair market value. If the donation is over $1,000, you’ll need documents to prove the value, like professional appraisal or receipts, if brand new.
So go ahead and support your local sports teams and charities! It’s good for the community, and good for business. If you have any questions, feel free to reach out to either of our Chartered Professional Accountants for some additional guidance. You can reach us here.
Read more about Corporate Taxes topics that may be helpful to you and your small business.
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