GST Q&A – Sponsorships, gifts and non-monetary contributions
Does your organisation put out invitations for sponsorships? This Q&A provides guidance on distinguishing between sponsorships and gifts for GST purposes, and discusses the valuation of non-monetary contributions.
Council is inviting sponsorships for an annual event. There are various sponsorship packages available from $10,000 to $500 or less value. Each package entitles the sponsor to a variety of benefits. The basic package provides networking opportunities at the launch event, 2 x ticket allocation, name on program and recognition on website. The top sponsorship level includes use of their logo, ticket allocations, product displays, advertising etc. It is considered that because the sponsor is receiving a benefit, and not mere acknowledgement, GST will be applicable.
Sponsors can also provide products and services to fulfill the sponsorship package.
For example: $1,000 sponsorship package – $250 cash and $750 volunteer hours
The in-kind portion (or 100%) could be products/services provided by the sponsor e.g. first aid, media, consulting, fertilizer etc. It is possible the in-kind portion could be used as prizes at the event.
Will the in-kind portion of the sponsorship be subject to GST? If so, how do would we value it? Is there any different treatment depending on whether the sponsor is registered for GST?
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There is a distinction between sponsorships and gifts.
According to GSTR 2012/2, a gift has the following characteristics and features:
- there is a transfer of a beneficial interest in property;
- the transfer is made voluntarily;
- the transfer arises by way of benefaction; and
- no material benefit or advantage is received by the giver (payer) by way of return.’
So, where an amount is paid with no expectation of material benefit or gain, it would be a gift.
In GSTR 2012/2, the ATO has ruled that mere recognition of the gift would not amount to a ‘material benefit’. So, a statement like ‘this payment was generously made by ABC Hardware’ would be okay, but if you said ‘this payment was generously made by ABC Hardware, suppliers of Australia’s cheapest tools’, that would be advertising and hence a ‘supply’.
Whether something is a material benefit has been considered in various ATO private binding rulings (PBRs).
PBR 45236 states that ‘mere acknowledgment of a person’s contribution does not constitute a material benefit. Likewise, if a contributor is given something of trifling or insubstantial value, such as a sticker or plastic lapel badge, that will also not be a material benefit.’
Whether a ticket to a VIP event is of ‘trifling or insubstantial value’ is a question of fact. We note that PBR 5847 states that ‘by providing advertising and free tickets, you are making a taxable supply to the sponsor who provides a monetary payment as consideration for this supply.’ Therefore, payments that receive a VIP ticket are unlikely to be considered a donation or gift, and GST is likely to apply.
Regarding sponsorship, we note that a fundamental concept in GST is whether there is a ‘supply for consideration’. Where consideration is money, the question is whether the money is being paid in relation to, or in return for, a supply. Sponsorship usually refers to situations where the person making the payment (in cash or in kind) is receiving some form of advertising or commercial benefit (e.g. signage rights, reference in promotional materials etc.). Where such transactions are between GST-registered entities, they are generally subject to GST. If the sponsor is not GST-registered, any supplies made by that entity would generally not be subject to GST. However, where a supply is made by Council (who is GST-registered) it would be subject to GST, irrespective of the GST registration status of the recipient.
According to GSTR 2012/2, ‘where the consideration is non-monetary, the amount of GST is based on the GST inclusive market value of the consideration, which is the market value of the consideration without any discount for GST payable.’
GSTR 2001/6 ‘provides reasonable methods for determining the GST inclusive market value of that non-monetary consideration and provides guidance when this valuation should be done.’
Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.