Every business owner knows that you don’t have a business without customers. What is the best way to reach people to tell them about your business? You need to advertise. People can’t find you unless you put yourself out there to be found. Advertising and marketing are expenses, but the good news is that because they are expenses, they are deemed as valid operating expenses that can be claimed as tax deductions.
What is Advertising?
We’ve all seen advertising messages when we click on the TV or listen to the radio. Scroll through your social media feed and you’ll notice their Ai hard at work bringing attention to the products and services that will be of interest to you.
Pro Tax Tip: Advertising and marketing expenses are generally tax deductible because they are valid operating expenses for your business.
In terms of advertising for your business, the Australian Taxation Office (ATO) includes advertising as a cost of everyday running for your business, so the ways in which you can reach out to your customers are classified as running or operating expenses. Advertising isn’t limited to television or radio. There are many forms that your advertising running costs can include, such as:
- Advertising in magazines, newspapers, television, radio, on demand television and radio
- Direct marketing – email provider, freelance writer, database marketing, promotional letters, outdoor advertising, sms messaging, coupons, direct phone calls, postcards, direct catalogue distribution
- Sponsorships – sports teams, promotional items, arena advertising, mugs, hats, t-shirts and other promotional items that contains your business name, logo and details
- CPC advertising – social media, google, SEO services
- Advertising materials – graphic design services, stock photos, printed business cards, brochures, pamphlets, web pages
- PR – publicity campaigns such as a campaign managers or social promotions event, networking activities, influencers
Pro Tax Tip: Your web site is tax deductible, but some of the expenses may be deemed capital expenses and not running costs and will need to be claimed in a different way.
Promotional activities are a form of advertising hustle that may suit your business because it allows face-to-face selling in which one person can chat about your product or service to potential customers. It is a promotional method by which the salesperson uses his or her skills and abilities in an attempt to make a sale.
Events such as promotional breakfasts, exhibitions, or sales events are activities designed to put your customer in a face-to-face selling situation, and as such, the associated costs are claimable. This includes meals, venue hire, giveaways and marketing materials designed to promote your business.
Staffing for the event, as well as any professional services you’ve hired for design, planning, and advertising can be claimed. Make sure the people you hire and their services are for gaining publicity, increasing your reach and selling your products and services to be claimable.
Pro Tax Tip: A gift to a client is tax deductible if the gift is characterised as being made for the purpose of producing future assessable income.
It’s important to remember that reusable items, such as A-frame signs, tablecloths, mugs for events are classed as capital expenses and may need to be depreciated as they are not considered to be marketing or advertising expenses.
Pro Tax Tip: Goodwill advertising that keeps your business name in front of customers is tax deductible.
Any personal costs at these events are not tax deductible though. You’ll need to apportion the costs between business and private expenses and claim only the business portion.
Sponsorship is a grey area when it comes to tax deductions. Some forms of sponsorship are just an expense, such as when a shop supports the local school or footy team because those little faces are too adorable to say no to.
However, if your sponsorship has enhanced your businesses image and customer attitudes; is likely to increase sales; and creates publicity and heightened visibility in your area and increases your assessable income, you can claim even if it turns out the sponsorship didn’t generate any future income.
If your business supports your local community with uniforms, equipment, including advertising on sports uniforms at games or a school event, your sponsorship would be tax deductible. There are exceptions where the sponsorship would be capital in nature, such as purchasing a car for a business owner.
Pro Tax Tip: In Tax Determination 92/192 the ATO advises costs of hiring a corporate box at a sporting event is deemed 95% entertainment and 5% in tax deductible advertising.
Advertising On Cars
This is another grey area for tax deductions. Many businesses have their logo and business name put on their cars to advertise their business while driving. The cost of printing your business name, logo and details that you put on your car, as well as installation costs are tax deductible as an advertising expense, but the cost of the vehicle is a capital expense and must be depreciated.
Putting advertising on a car doesn’t change the use of the car from personal to business use. If the car is used for work purposes, then the running costs of the car, as well as the leasing or purchase price can be deducted under different classifications.
Pro Tax Tip: Advertising costs for start-ups are capital expenses that will need to be depreciated as part of start-up costs.
In some cases, gifts made to politicians or political parties and independent candidates and members may be claimed as a tax deduction, however your contributions must be made in a personal capacity to be a tax deduction. Businesses are exempt from claiming contributions or gifts made to political parties, including payments incurred in deriving assessable income.
To be a recipient for a political party, they must be:
- a political party registered under Commonwealth, state or territory legislation
- an independent member of the Commonwealth Parliament, a state parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly of the Australian Capital Territory
- an independent candidate for the Commonwealth Parliament, a state parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly of the Australian Capital Territory
Pro Tax Tip: A membership subscription to a registered political party can be claimed as a tax deduction.
The most that you can claim in a financial year is:
- $1,500 for contributions and gifts to political parties
- $1,500 for contributions and gifts to independent candidates and members.
Any tax deduction claimed for marketing or advertising must be with the aim to generate assessable income for your business. It’s essential to keep detailed records to support your claims. You can only claim tax deductions on expenses you’ve already incurred, have the evidence to back your claims and the claim must be directly related to earning your income.
Tax deductions are claimed to lower your overall taxable income. Advice in this article is general in nature. Should you wish for more detailed advice, call 180 367 487 and chat with a friendly ITP Tax Accountant.