Tax Updates: 22 September 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Income tax considerations when sponsoring others

FOver the years, I have certainly been asked my fair share of questions surrounding sponsorship. But, more often than not, it’s been related to a scenario where the client wants their business to pay for something they enjoy doing outside of the business (go-karting is one example I recall), so they can get a tax deduction on the cost.

Clearly, Inland Revenue (IR) are not blind to these types of scenarios either, and therefore the latest draft interpretation statement (IS) issued for comment titled “Income tax implications of providing sponsorship” will eventually replace the previous version IS3229.

Within the latest IS, the definition of sponsorship has been expanded to cover support of an organisation, event, person or cause either monetarily or through the provision of products or services. In IS3229, the definition was just considered to cover expenditure by a taxpayer.

It goes without saying that the standard approach to any questions from a client regarding the deductibility of sponsorship will be to consider the general permission (can you satisfy a nexus between the sponsorship and your client’s derivation of income, or of running a business for the purpose of deriving income). And having ticked that box, will any of the general limitations apply to then deny the deduction – top of the chain, most likely the private limitation (I may be too harsh here) or the capital limitation.

Like most things in the world of tax, where the issue is not black and white, you need to understand your client’s subjective mind first (what’s their reason for sponsoring). Then, take a step back and consider whether you think that reason will withstand an objective analysis of the surrounding circumstances, including the effect of the expenditure.

The draft IS proceeds on the basis that the reason behind sponsorship is for a taxpayer to promote or advertise their business (which would hopefully lead to some income derivation which would not have occurred without the sponsorship). Evidential support for a client’s contention in this regard could come from:

• the specific terms of the sponsorship arrangement;  

• the place of the sponsorship arrangement in a coherent marketing strategy;  

• the relationship between the market, or potential market, and the taxpayer’s business; and,  

• the relationship between the expenditure and the resulting income derived.

Where it is evident that the client may derive a private or domestic benefit from the sponsorship, then it may be prudent to consider apportionment of any expenditure (unless you think in substance that the benefit has incidentally arisen in the income-earning or business activity of the client).

Under the expanded definition of sponsorship, rather than providing money to the cause, the taxpayer could provide goods that are their trading stock, or they could provide their services (either for nil consideration or at a reduced rate). Provided the goods are not given to an associated person of the taxpayer or taken for their own use or consumption, the value of the trading stock will be deductible in accordance with the usual trading stock rules, and no deemed income under the anti-avoidance rules (disposal for less than market value consideration) will arise for the taxpayer.

Finally, there is the issue of sponsorship provided to an employee of the client. The IS discusses briefly when an amount paid may be considered expenditure on account of the employee (therefore income of the employee) or where goods/services provided instead by the employer may be considered a fringe benefit. It may also be a case that the employer can show that the sponsorship would have been provided regardless of the employment relationship, and therefore no tax issues should arise in relation to any benefit derived by the employee.

The draft IS has the reference PUB00509, is 46 pages in length, contains numerous examples throughout to illustrate its commentary, and should you wish to make a submission, you must do so by the 21^st November.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.