The six good reasons were part of an accounting equation meant to evaluate the feasibility of such an exercise by that Business Entity.

    The Sponsorship Equation:

    This accounting formula or equation for a reasonable Sponsorship took the form:

        $S = A x B x C x D x E x F

     where $S = value of the Sponsorship and:

(the difference between two %s is unit not a %)

        A = % increase in morale of the employees as a working team and the resulting admiration of their customers:

        B = % increase and improvement of the image and promotion of the Business including their product and services:

        C = % the increase in the health and working efficiency of the Sponsored employee(s)

        D = the $ value of the tax benefit allowed as a cost incurred in producing a taxable income (ITAA97 s8(1):

        E = the promotion of a good cause as a civic duty - on a scale of 0 to 10:

        F = a declaration of the overall Business’s Patriotism and Philanthropy - on a scale of 0 to 10:

        This formula or similar, worked fine until the Federal Labour Government made Sport Sponsoring of an employee/associate a Fringe Benefit and therefore taxable within the Income Tax Assessment Act (FBTAA).

        Example:

        A Sponsorship to the value of $10,000/annum costs the Employer $19,417 and $9,417 would be a Fringe Benefit Tax - paid by the employer and clearly not a benefit (D) to that employer. This resulted in "0" (Zero) being inserted into the formula at "D" thus reducing the final result to Zero or no Sponsorship.

        But there's More:

        Further more, the Labour Government made it even more impossible for Businesses to Sponsor SportsPersons by including legislation that prohibited "associates" or "third parties" from arrangements of Sponsoring a Sportsperson - or being Sponsored.

       "An employer can be liable for FBT even if (directly or indirectly) the benefits are provided by third parties, or by an "associate" of the employer"

(this awaits update of the ITAA97 in this regard)

     Vote Catcher or Ambush?

     This was a very drastic measure put upon employers who might not know of any such Sponsorship arrangements for their employees given by "third parties". Someone out of the blue or not involved ---- 

    But the employer or Business would still have to pay the Fringe Benefit Tax. If "out of the blue" were to be a competing Business then the unlucky employer was said to have been "ambushed". 

    This was indeed a covert operation by Unions and the ACTU to stop employers and Business gaining the approval of employees by Sport

     Sponsorships thus undermining the power of the Unions. Politically, it is in the interest of Unions and it’s old Labour Party cohorts to have employees at odds with Business and employers generally.

        A Change of Government needed:

        In April 1998 the Federal Liberal Government was able to have the definition of an "arrangement" changed to that of the "---- employer or associate knowingly participates in or facilitates or promotes the arrangement, scheme or plan involving the provision of the benefit.

        An Interesting (Hypothetical) Case:

        An interesting case may be an issue on the Gold Coast where a Real Estate Business CEO was told that a Motor Dealership CEO would no longer Sponsor his cricket team unless the Estate Agent promoted the sale of his motor vehicles. 

       It was presumed that the Estate Agent would thereby reciprocate and Sponsor the Motor Dealers soccer team provided they in turn, sold houses.

        Normal Circumstances:

        Under normal circumstances this would seem to contravene the FBT Act. At least for those team members who were employees or associates or --- possible third parties.

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        NB. If the cricket team were not subscribing to the above formula and thereby, not endeavouring to promote the Motor Dealership in previous years, the Australian Tax Office might have a good case of an ITAA97 s8(1) promotional expense being used to cover up a donation or gift to the cricket club in the past years. This is not normally a claimable tax deduction and therefore almost a clear cut case of a sham tax avoidance scheme.

        Hang the Criminals:

        It could also be a case of criminal tax evasion on the part of the cricket club officials, if it happens to be a profit making organisation and did not account for the "gift" as a possible taxable income.

        The Court:

        The Courts are not appeased with an "I didn’t know" evidence of innocence as it is a requirement of officials to know the law.

        Consider this:

        (1) Obviously in a Sport Sponsorship involving money or other, there is what is known as a scheme: a plan, agreement, understanding, promise, undertaking or arrangement - even a "Strategy" [defined ITAA97 s177A(1)].

        (2) Just as obvious, is the derived tax benefit for the Sponsor under s8(1) [defined ITAA97 s177C]

        (3) All new Sponsorship schemes, for practical purposes, are entered into after 27 May 1981.

        Essential Elements:

        These are three of the four essential elements of Part IVA anti Avoidance Legislation of the previous Federal Labour Government installed to beat up on Businesses for votes from the Unions and cohorts.

        The Australian Commissioner of Taxation now has to decide on the fourth (4) element of Part IVA.

      The Big Question:

        Has the scheme been entered into with the sole or dominant purpose of obtaining a tax benefit?

       Check out the Formula:

        If we look closely again at the Sponsorship formula we can adjudge that because item "A" and "C" have been eliminated from the Sponsorship formula to retain "D" with a positive multiplier then "E" and "F" are very minor multipliers.

        A Big Decision:

        The Commissioner has only to decide then, between "B" and "D" i.e.

        (B) the "increase in the image and promotion of the Business and it’s product or services" - the commercial consideration

        and (D) the derived tax benefit.

        Consider the View:

        It might be seen in the Real Estate CEO case above that quite often a Sport Sponsorship can very easily be the considered view as a gift, donation or prise for having competed, won or worthy of gratitude for a sporting job well done. In which case the Sponsored Sportsperson has done nothing to "increase the image or promoted the Business and it’s product or services".

        Is this the same considered view of any "Sponsored"?

        If so the Tax Commissioner has no other course but to amend the Business Tax Return so that no Tax Deduction can be claimed for the sham Sponsorship and a plea of "I didn’t know" will not reduce the penalty.

        Big Trouble:

        The involved Sponsored Sportsperson or Sporting Entity with this view, has a further problem.

        Big Trouble for Sport in General:

        Sport in General has a Sponsorship problem mounting every moment through lack of tax knowledge.

        What the Big Boys Say:

Richard Pratt, Billionaire philanthropist of Visy Corp said that Sport was not worth the trouble to Sponsor and the Arts were much better.

        How about Image?

        The Commonwealth Bank dropped it’s Sponsorship of the Highschool Rugby League Football Competition due to a televised punch-up of players which may have damaged the Bank’s image.

        Are there Solutions to the Problems?

        Each element of the equation has a problem and all problems have solutions.

        Criticism is not a solution.