Production incentives

overview

Producer Offset | Location Offset (Refundable Film Tax Offset)
PDV Offset | 10BA and 10B | FLIC scheme

There are three streams to the Australian Screen Production Incentive currently offered by the Federal Government for the production and post-production of large-budget screen projects in Australia:

• Producer Offset
• Location Offset (previously known as the Refundable Film Tax Offset)
• PDV Offset

They are mutually exclusive, i.e. where one offset has already been accessed or will be accessed by a production company or someone in relation to the project, the project is not eligible for the remaining two offsets.

These offsets supersede earlier Australian Government incentives: Divisions 10BA and 10B and the Film Licensed Investment Company (FLIC) scheme.

For more information see:

• Screen Australia Producer Offset
• Department of the Communications and the Arts

Producer Offset

Introduced in July 2007 and further refined in July 2011, the Producer Offset is a financial incentive, administered by Screen Australia, offered to producers of Australian film and television projects.

The Producer Offset offers a 40 per cent tax rebate for feature films and a 20 per cent tax rebate for productions other than feature films. These other productions include documentaries (with budgets of $500,000 or more), television series (where there is a minimum episode requirement of two episodes and a maximum of 65 commercial hours [previously 65 episodes]), telemovies and short-form animation with a minimum 15-minute duration.

Eligible documentaries with budgets between $125,000 and $500,000 are able to apply for a Producer Equity payment equal to 20 per cent of the budget.

In addition to the format requirement, there are two primary criteria that need to be met – the significant Australian content (SAC) test, and the qualifying Australian production expenditure (QAPE) threshold. Further requirements include meeting relevant commencement and completion dates, and eligibility of applicants. The Offset is only available to companies, and the company must be an Australian resident or have a permanent establishment in Australia, and be able to lodge an income tax return in Australia.

The SAC test will be met where the film has a sufficient level of Australian content, which can be determined by subject matter, the place the film was made, the nationalities or places of residence of the persons involved in making the film (including directors, producers, scriptwriters, cinematographers, actors and editors), where the funding came from for the film or any other matters considered to be relevant by Screen Australia.

QAPE thresholds are based on format

A film’s production expenditure is defined as the expenditure incurred or reasonably attributable to actually making the film, up to the point that it is ready to be distributed, broadcast or exhibited to the general public. It includes expenditure made on goods or services provided in Australia and expenditure made overseas during principal photography for goods or services provided by Australian residents, where the use of the overseas location is reasonably necessitated by the subject matter of the film. A maximum level of 20 per cent of the budget may be incurred on ‘above-the-line’ costs, ie those incurred on chief creative personnel. As of 1 July 2011, the above-the-line cap has been removed for non-feature documentaries.

To qualify for the Offset, a project must be assessed and certified by Screen Australia. The certification process is in two stages – optional provisional and final. The Offset applies to expenditure on eligible projects incurred on or after 1 July 2007, irrespective of whether or not a provisional certificate has been issued. A film need not have a provisional certificate issued to be eligible for a final certificate. The final certificate will be issued by Screen Australia where a production meets the relevant requirements, and, once issued, the certificate is submitted with the applicant company’s tax return for the year of completion. A final certificate will only be issued following completion, and will be based on audited accounts to substantiate that the QAPE threshold was met. An exception to this is television series, where a final certificate can be issued at the completion of each season of the series, where the QAPE threshold is met and the series has not exceeded the limit of 65 commercial hours (or 65 episodes, prior to 1 July 2011). Another exception applies to official co-productions, which will automatically be considered qualifying Australian films.

The film must be produced for public release or distribution in some form. Applicants will be required to provide evidence of such distribution for final certification. Feature films, being the only form of production receiving a 40 per cent tax rebate, must show evidence of intent to have a cinema release in Australia, screened as the main attraction in a commercial cinema. For other formats, evidence of distribution can include Australian television broadcast, or commercial delivery via a new media platform, such as online or mobile content.

Where a company or someone else in relation to the film has already accessed another Australian Government film incentive – eg the Location Offset or PDV Offset – or where the film has received investment from a FLIC or production funding from the Film Finance Corporation Australia, the Australian Film Commission, Film Australia or the Australian Film, Television and Radio School prior to 1 July 2007, the company will not be entitled to the Producer Offset. Successful applicants will be excluded from applying for some Commonwealth incentives, but will remain eligible for others. Access to the Producer Offset, however, does not affect a company’s ability to access state and territory based tax incentives.

Source: Screen Australia, Producer Offset for Screen Production in Australia Guidelines.

Location Offset (Refundable Film Tax Offset)

The Refundable Film Tax Offset (RFTO) was introduced by the Federal Government in September 2001 as a financial incentive for producers of large-budget films to use Australian locations, cast, crew and service providers. It provided for a 12.5 per cent offset on minimum Australian expenditure of $15 million. Initially restricted to feature films, mini-series and telemovies, legislation was introduced to include television series in August 2005.

In July 2007, the RFTO was renamed the Location Offset and increased to 15 per cent, increasing a further 1.5 per cent in 2011.

The Location Offset is applied at a fixed rate of 16.5 per cent of qualifying Australian production expenditure (QAPE) on an eligible film or television project where principal photography or production of the visual image (for animation) commenced on or after 10 May 2011. Between 8 May 2007 and 9 May 2011, the rate was 15 per cent. For productions prior to this, the previous offset may be available at a fixed rate of 12.5 per cent of the production’s QAPE. To qualify, a production must spend at least $15 million in QAPE, which is generally considered to be expenditure on Australian goods and services, or use of Australian land or goods during production. Where qualifying expenditure is between $15 million and $50 million, 70 per cent of total expenditure must be spent on production activity in Australia, but films that spend over $50 million in QAPE automatically qualify for the offset.

Unlike the Producer Offset, which is administered by Screen Australia, the Location Offset is administered by the Office for the Arts within the Department of the Prime Minister and Cabinet (formerly by the Department of the Environment, Water, Heritage and the Arts). Applicants must obtain a certificate of eligibility from the Minister for the Arts, issued where the production meets the relevant requirements of the Offset. These certificates can be issued provisionally, which is optional, but all productions require final certification. The final certificate is then provided with the applicant’s tax return in the relevant financial year to the Australian Taxation Office, which oversees the payment of the Offset.

An alternative but mutually exclusive offset is available for PDV projects, whether or not the film is shot in Australia. See PDV Offset below.

Source: Office for the Arts, Department of the Prime Minister and Cabinet (formerly Department of the Environment, Water, Heritage and the Arts), Guidelines to the Australian Screen Production Incentive – Location and PDV Offsets: Incentives for large-budget screen production in Australia.

PDV Offset

The PDV Offset was established in July 2007 with the goal of assisting the Australian post, digital and visual effects production sector.

The 30 per cent offset (previously 15 per cent) is available for PDV projects that commenced PDV production work in Australia on or after 1 July 2011, and spend at least $500,000 in qualifying PDV expenditure (QAPE incurred in relation to PDV production) in Australia, regardless of where the film is shot. The production must be in an eligible format, which includes features, telemovies, mini-series and television series (including documentary and reality television). PDV is considered to include tasks including, but not limited to, visual effects, audio and visual editing and mixing, orchestration, and green-screen photography.

Like the Location Offset, the PDV Offset is administered by the Office of the Arts within the Department of the Prime Minister and Cabinet (formerly by the Department of the Environment, Water, Heritage and the Arts) and a similar system of certification applies.

Source: Office for the Arts, Department of the Prime Minister and Cabinet (formerly Department of the Environment, Water, Heritage and the Arts), Guidelines to the Australian Screen Production Incentive – Location and PDV Offsets: Incentives for large-budget screen production in Australia.

10BA and 10B

Divisions 10BA and 10B operated until July 2007, when they were replaced by the Producer Offset. They closed to new applications at 30 June 2007.

Division 10BA aimed to encourage private investment in culturally relevant, high-quality Australian film and television productions. Investors in 10BA-certified projects acquired an interest in the copyright of new, qualifying Australian programs and could claim a tax concession of 100 per cent in the year the investment was made. (This had been 150 per cent when first introduced in June 1981 but was gradually reduced.)

To be eligible, a project had to be certified by the Department of Communications, Information Technology and the Arts (DCITA) as a ‘qualifying Australian film’. Program makers could apply for a provisional certificate early in the production process. Once fundraising began the Australian Tax Office needed to be notified within one month of the end of that financial year. To secure the investors’ deductions, 10BA program makers were required to apply for a final certificate within six months of completing the project.

Programs allowed under 10BA included features, documentaries, mini-series and telemovies, with definitions provided by DCITA. To qualify, programs needed to be made wholly or substantially in Australia or be an official co-production, and have ‘significant Australian content’. In March 2000, half-hour animated telemovies became eligible for 10BA as well as animated mini-series for adults (30 minutes an episode) and children (15 minutes an episode). Large-format (IMAX), 45-minute feature films were also allowed.

Programs certified under 10BA were also eligible for direct investment from the Film Finance Corporation Australia.

Division 10B tax concessions, available on completion of a project, applied to a greater number of categories than 10BA and included feature films, documentaries, mini-series, short dramas and multimedia formats such as CD-ROMs, plus promotional, variety, educational and training material as well as large-format programs.

Under 10B, projects were also required to be assessed as wholly or substantially made in Australia and those that qualified were issued with a certificate. They were not eligible for funding from the Film Finance Corporation Australia.

Initial investors who acquired an interest in the copyright of new, qualifying productions received a 100 per cent tax concession over two financial years once the film existed and was used to produce income.

The concessional status for investment in productions holding valid 10BA or 10B certificates will continue to be available until 30 June 2009.

FLIC scheme

The Film Licensed Investment Company (FLIC) scheme was an initiative proposed by David Gonski in his Review of Commonwealth Assistance to the Film Industry, 1997. Investors received 100 per cent tax concessions for buying shares in a FLIC, which, in turn, invested in qualifying Australian programs. Unlike 10BA and 10B investments in single projects, shares in a FLIC spread the risk across a slate of productions.

Two FLIC licensees were appointed in April 1999 – Content Capital Ltd and Macquarie Film Corporation Ltd (managed by Macquarie Filmed Investments Pty Ltd). Each could raise up to $20 million concessional capital over two financial years ending June 2000. Only $22.4 million out of the possible $40 million was secured by that date, $16.26 million for Macquarie and $6.14 million for Content Capital.

Content Capital's investments under the scheme included the feature films The Monkey's Mask and The Bank as well as a television documentary series on cartoonist Michael Leunig. Macquarie Film Corporation made a number of investments in features. The first of these, Dirty Deeds, starring Bryan Brown and Sam Neill, was released mid-2002. Other investments included Crackerjack and The Nugget.

A second FLIC scheme was announced in 2005 to follow the 1999 pilot scheme. Mullis Capital Film Licensed Investment Company (now called The FLIC Company) was granted the licence in December 2005 to raise capital of up to $10 million in each of 2005/06 and 2006/07 for investment in Australian film and television productions. After 30 June 2007, the FLIC scheme is able to raise non-concessional capital. All FLIC productions must be completed by 30 June 2009.

No further FLIC licences will be issued due to the introduction of the Producer Offset.

Who administers the incentives?

Screen Australia administers the Producer Offset.

The Office for the Arts within the Department of the Communications and the Arts administers the Location and PDV Offsets (see www.arts.gov.au). Matters dealing with taxation benefits for investors are the responsibility of the Commissioner of Taxation and the Australian Taxation Office (ATO); see http://www.ato.gov.au/individuals/ and search on the word ‘film’.