Suzanne Derry and Serena Armstrong are solicitors at Arts Law.
As part of the 2007-2008 Budget, the Commonwealth Government announced the new Australian Screen Production Incentive (Incentive). The Incentive was released following a review of film funding support measures in Australia. A number of significant changes are proposed. These include:
- the abolition of the existing Division 10B and 10BA incentives (under which investors in qualifying productions receive a 100% tax deduction on their investment);
- the introduction of a Producer Offset;
- the increase of the Location Offset from 12.5% to 15%;
- the introduction of the PDV Offset, an offset in relation to post, digital and visual effects production; and
- the creation of the Australian Screen Authority (ASA) on 1 July 2008 to replace the Australian Film Commission, Film Finance Corporation Australia and Film Australia Limited (it is proposed that these 3 bodies will merge to form the ASA).
The legislation containing the proposed changes has yet to be passed although the Senate Standing Committee on Economics has recommended it be passed and that the legislation be reviewed in 12 months time. This article is based upon the bill as at 6 September 2007 and may not reflect the legislation when (and if) it is passed. The film production offset changes are contained in chapter 10 of the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 (Cth), which was introduced to Parliament on 16 August 2007.
The Producer Offset will provide a refundable tax offset for expenditure incurred on or after 1 July 2007 of:
- 40% of qualifying expenditure incurred on a feature film; or
- 20% for qualifying expenditure incurred on film and television programs that are not feature films.
This offset is aimed at Australian companies, or companies with a permanent establishment in Australia.
The Location Offset and PDV Offset are intended to attract offshore film and television productions to undertake work in Australia. It is proposed to increase the Location Offset (currently known as the Refundable Film Tax Offset) from 12.5% to 15% of the qualifying expenditure. The post, digital and visual effects production offset (PDV Offset) of 15% applies for qualifying productions undertaking post, digital or visual effects production in Australia regardless of where the production is shot.
Will I be eligible for an offset?
To be entitled to an offset you must meet the eligibility criteria and go through an application and certification process. You can only claim one of the offsets in relation to a film or television show. If you have made a claim under the existing Division 10B or 10BA scheme or received production funding from an Australian Government film agency prior to 1 July 2007 (not including ABC or SBS) you are ineligible for the proposed new offsets.
As with the Division 10B and 10BA incentives, you must meet certain eligibility criteria to be entitled to an offset. The most significant changes to the eligibility tests are that:
- a film will only qualify for a Producer Offset if a commercial cinema release for the film is guaranteed;
- formats other than film must show evidence that it will be distributed – however self-distribution may be acceptable;
- expenditure on costs outside of Australia may now qualify if the overseas activity is for purposes connected to the subject matter of the film (such as going to Gallipoli to shoot a documentary about the ANZAC landing); and
- you must meet the minimum expenditure thresholds.
The minimum expenditure thresholds for the Producer Offset vary according to the format of your production. You must show:
- feature films – minimum qualifying expenditure of $1 million;
- documentaries – average minimum qualifying expenditure of $250,000 per hour;
- television series – minimum qualifying expenditure of $1 million and average qualifying expenditure of $500,000 per hour;
- telemovies – minimum qualifying expenditure of $1 million and average qualifying expenditure of $800,000 per hour; and
- short form animation – minimum qualifying expenditure spend of $250, 000 and average qualifying expenditure of $250,000 per quarter hour.
The minimum expenditure for films for the Location Offset is $15 million in qualifying expenditure with some additional qualifications where the film’s budget is below $50 million. The minimum expenditure for a television series must be at least $1 million in qualifying expenditure per hour of the series. The minimum expenditure for films for the PDV Offset is $5 million in qualifying expenditure on PDV.