Private ruling: Deductibility of grant/sponsorship payments
Published: December 2014
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2015

Ruling: Q1: Are the grant / sponsorship payments made by X ("X") to community organisations fully deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as advertising and promotion expenses?

Relevant facts and circumstances: The following description of the scheme is based on information that has been provided by the applicant, as contained in correspondence from the applicant (private ruling application form tax professionals, dated 24 November 2014). 1. X is a company limited by guarantee; 2. X is involved in the provision of community banking services in the towns of X and Y; 3. X uses their profits to sponsor various projects that are undertaken by community organizations; 4. The grants / sponsorships made to the community organizations are to be spent on various projects in the community, on the proviso that the organizations promote the X and Y community branches of XY Ltd; 5. The advertising and promotion generates increased revenues and profits for X, specifically when a greater number of residents use the products and services of the X and Y's community branches of XY Ltd; 6. There has been continuing growth in the use of the community banks over the past years, with income growing by 38% since the private ruling issued in 2007; 7. Prior to receiving a payment from X, the community organisation must complete a grant `Application Form' which states that "it is a condition of application that the organization agree to actively promote the X and / or Y Community Branches through the organisation's newsletter, meetings, display of logos on promotional materials, material in mail-outs, acknowledgement of support, and display of banners and signage"; 8. The applicant must provide details of what the grant will be used for, who the chief beneficiaries of the project being funded are, and how the project will benefit the wider community; 9. In most cases, the community organizations receiving the grant / sponsorship monies from X will not be using the money to generate assessable income; 10. The payment of the grant /sponsorship monies increase X's revenue and profit through community advertising and promotion, which helps to promote the use of Community Banks.

Relevant legislative provisions: Section 8-1 of the Income Tax Assessment Act

Reasons for decision: Summary: The grant and sponsorship payments made by X are fully deductible under section 8-1 of the ITAA 1997 as advertising and promotion expenses. | Detailed Reasoning - Detailed reasoning: The Commissioner has previously issued private binding rulings ("PBR") to X. In each PBR, it has been confirmed that the sponsorship provided by X for community projects is fully deductible under section 8-1 of the ITAA 1997, as it has the characteristic of an advertising expense directed at enhancing the future growth and income of the business activities that are undertaken by X. | Detailed Reasoning - Conclusion: In accordance with the above, as there have been no material changes to the facts, or the applicable legislation, since the previous PBR, it will be extended for a further four years, on the basis that the grant and sponsorship payments made by X are fully deductible under section 8-1 of the ITAA 1997 as advertising and promotion expenses.

Previous private ruling applications: 11. The Taxpayer is seeking an extension of the previous private ruling for a further four years of income, and has advised that there have been no material changes to the facts of the arrangement since the favourable private ruling dated X; and | 12. There have been no changes to section 8-1 of the ITAA 1997 since the previous ruling.