Corporate giving
Support by companies to various organisations can be provided in a number of different forms. Deciding upon what type of support will best achieve the company’s objective will depend upon the resources available, and what the key drivers are for the support in the first instance.Cash Donations
Making a cash donation will assist the recipient organisation financially. Given the support is in cash, it is likely there will be limited control as to how the donation is spent. If it is a material amount, it may be possible to require the money be spent on a certain project/area (often referred to as “tagging”).
From a tax perspective, only limited relief is currently available. Tax rebates are not available for companies. Cash donations are not a tax deductible expense for closely-held companies, other than if such entities are listed on a recognised exchange. Closely-held companies are ones that have 5 or fewer natural persons who have an aggregate of voting interests in the company in excess of 50%. Shareholders associated with each other are treated as 1 shareholder for this test.
All other companies that make a cash donation to any “donee organisation” are currently limited in the tax deduction each year to an amount not exceeding 5% of the company’s profit for the year (excluding the gifts).
Proposed Changes
Changes have been announced in the 2007 Budget addressing this issue. It is intended that from the commencement of the 2009 financial year (1 April 2008) all companies will be entitled to an income tax deduction for donations made to charitable organisations, limited only by the amount of the company’s net income.
At the date of writing this, the new legislation had not yet been enacted – until this occurs it is subject to change.
Sponsorship
Sponsorship is a common means of providing support to organisations. Goods, services or cash are given to an organisation in relation to a specific event or activity in return for something passing back to the provider. This can include advertising, acknowledgement or naming rights, free goods or services in return.
Sponsorship is an effective way for a company to provide support while generating good public exposure. The event does not necessarily need to be directly connected to the company’s business to be beneficial, as any funding provided will assist in creating a favourable public perception.
In addition, if the corporate sponsor can show a connection between the costs incurred and the business, a tax deduction is available for those costs. This connection could be as simple as the sponsored event helps to provide advertising for the company in an attempt to increase the level of sales.
Free or Discounted Goods & Services
Providing free or discounted goods and services has a direct benefit to the donee organisation. On the one hand, it helps cover the overhead costs which would otherwise be required to be paid by the organisation. Alternatively, the goods or services may be converted into cash, such as through on-selling, prizes in competitions, charity auctions etc.
Goods
A donor could choose to donate (or sell at a discounted rate) goods. This may be particularly cost effective for the company if the opportunity cost of making or acquiring those goods is small. In addition, the company may chose to donate surplus, obsolete or cosmetically damaged stock or equipment, returned (but still functional) goods or old stationery supplies. Examples include old furniture and equipment, out of date computers.
Services
A wide range of services can be made available on a pro bono basis to assist the organisation. Those services can include professional (legal, accounting, marketing, leadership, business experience), technical (information technology, web-site, printing, design), ancillary (free use of premises, postage) or simply supplying additional personnel resource. The expertise and experience of company personnel can be invaluable.
Whilst some companies simply see this as a means of providing a level of support, there can be additional benefits. These range from a greater market profile and beneficial perceptions, to employee satisfaction and belonging. How and when the services would be offered would require consideration so that it did not adversely affect normal business operations and place strain on the existing business or its employees.
Donation of Association
A company can effectively donate its reputation by any of the means described above, or simply by associating itself with a charity. This can be the visible catalyst for other organisations to make similar contributions.