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Podcast – Producer Offset explainer

Understand the recent changes to the Producer Offset, Screen Australia’s updated guidelines, tips for applying and more.

Michele McDonald and Graeme Mason sitting at a table recording the Screen Australia podcast.

Michele McDonald and Graeme Mason

Find this episode of the Screen Australia Podcast on iTunes, Spotify, Stitcher or Pocket Casts

In December 2021, there were changes to legislation governing the Producer Offset, the refundable tax rebate that Screen Australia administers on behalf of the Federal Government.

On the latest episode of the Screen Australia podcast, Screen Australia CEO Graeme Mason and Michele McDonald, the Producer Offset and Co-Production Unit (POCU) Senior Manager, talk through these changes as well as the updated Screen Australia guidelines, key areas assessors look at, the most common mistakes they see in applications (and how it holds up the process), as well as advice on everything from getting your Final Certificate to general ledgers.

“The Producer Offset is essential to the Australian screen production sector, both to getting content made and to the viability of businesses,” Mason says, adding it is “extremely competitive” compared to offsets in other parts of the world.

“But the key distinction here is the government decided to do it where it was meant to vest in the production entity to help them build their business, so it’s meant to give them something beyond just the immediate cashflow in the project. It’s meant to be down the line, they’ll still be sharing in revenue.”

For more information regarding the Producer Offset visit the funding and support page here

This podcast is also available to watch as a vodcast on Screen Australia’s YouTube Channel.

Audio Transcript

[00:00:05] Caris Bizzaca: Welcome to the Screen Australia podcast. I'm Caris Bizzaca, a journalist with Screen Australia's online publication Screen News. I'd like to firstly acknowledge the countries on which we meet. Regardless of your geographical location, we are meeting on the unceded lands of Aboriginal and Torres Strait Islander people. This podcast has been created on the lands of the Gadigal people of the larger Eora Nation, and I've had the great privilege to be a visitor and be able to work on these lands during my years at Screen Australia. Always was, always will be. On this episode of the podcast, we are diving into a discussion around the Producer Offset: a refundable tax rebate for producers of Australian feature films, TV and more. In late 2021, there were changes to legislation governing the Producer Offset, which Screen Australia administers on behalf of the federal government. Joining us to talk through these changes and tips for anyone applying for the Producer Offset is Screen Australia CEO Graeme Mason and Michele McDonald, the senior manager of the Producer Offset and Co-production Unit here at Screen Australia, which is also known as POCU. Graeme and Michele discuss the updated Screen Australia guidelines, key areas assessors look at, the most common mistakes they see in applications and how it holds up the process, as well as advice on everything from getting a final certificate, to general ledgers, to what 'arm's length' dealings are. We've also provided a link in the show notes to the Producer Offset funding page, which has a wealth of resources as well as to a video or vodcast version of this particular episode. As always, remember, you can subscribe to the Screen Australia podcast through places like Spotify and iTunes. Feedback can be sent to  [email protected] and subscribe to Screen Australia's Industry eNews for the latest from the local industry. Now, without further ado, here's Screen Australia CEO Graeme Mason and Michele McDonald, the senior manager of the Producer Offset and Co-production Unit. Michele, what is the Producer Offset and can you give a quick overview of how it works?

[00:02:17] Michele McDonald Yes, so the Producer Offset is one of three federal incentives offered by the government for films made in Australia. There are three rebates: the other two are the location offset and the PDV post-production and digital effects offset, as well as a location incentive. So the Producer Offset is for Australian Films - is administered by Screen Australia, and I guess one of the key eligibility criteria is that it is for films that have what we call a Significant Australian Content, so creatively driven by Australians and predominantly made here in Australia. So the Producer Offset is, you know, we talk about the level of rebate, the Producer Offset is a 40% rebate on what we call qualifying Australian production expenditure, which is basically goods and services provided in Australia for the making of the film. That is for a feature film made for commercial exhibition to the public in cinemas and projects that are not features made for cinema are eligible for a 30% rebate under the new legislation. And that is TV series, documentary or feature films made for SVOD or television broadcast etc. So how it works is there are two stages to applying for the offset and the first stage, which is optional, is coming in for a provisional certificate, and that is where we can confirm that, yes, you know, we think your project is eligible for the offset. It's a non-binding eligibility guide. Probably important to note, it doesn't entitle a project to actually receive the offset, but it will just allow producers to, you know, get an idea if their project is eligible or not. So most projects do come in for a provisional and we issue that. What a lot of producers do here in Australia is that they will then go off and borrow from a lender the expected amount of the rebate and that is cash flowed into the finance plan for the film. So it's a really important part of the financing for a project, and then the second stage is once the film is completed, it goes through an audit and then it comes to us and we assess it and will issue a final certificate. So what we do during that assessment process is confirm that all of the key eligibility criteria is met and Screen Australia determines the final QAPE figure, which the rebate is then based on. So we issue a final certificate to the producer and the producer takes that final certificate and submits it to the ATO with their company tax return, and the ATO then pays that refund.

[00:05:01] Caris Bizzaca: Fantastic, and so just a couple of those terms. So you say QAPE, which was Qualifying Australian Production Expenditure and the other one was the Significant Australian Content. So if either of us referred to the SAC test, that is Significant Australian Content. And so, Graeme, how important is the Producer Offset to the industry and how does it compare to other territories?

[00:05:26] Graeme Mason Offset is essential, quite frankly, to the Australian screen production sector, both to getting content made and to the viability of businesses. It is extremely competitive. It's a very good scheme because it varies from others that are normally purely tax credit or is credit purely on expenditure. So if you're in South Carolina or in the UK, it's going to be about half of the feature film offset that we have here. But the key distinction here is the government decided to do it where it was meant to vest in the production entity to help them build their business. So it's meant to give them something beyond just the immediate cash flow into the project. It's meant to be down the line, they'll still be sharing in revenue to build businesses.

[00:06:11] Caris Bizzaca: Fantastic, and so there were some changes that happened in late 2021 regarding the Producer Offset. Graeme, what prompted the change in legislation?

[00:06:24] Graeme Mason I think if you go all the way back Screen Australia with our sister agency ACMA, we did an options paper and looking at what was the right way to support the sector in the current climate. I mean, this was the offset as it is, was designed in probably 2007, implemented in 2008. And then there was a real sense about trying to have across the board, almost platform neutrality was a mover originally behind the Government's move to changes in legislation and there was some other sort of cleaning up and tidying up which they were aiming for. Particularly around that was therefore small screen was going to come up from 20-30%. And originally features were going to come down - that didn't happen in the end, but also that was the idea originally was they're going to be across the board. For those of you who haven't read it, it's still going to be on our website or ACMA's website. You could look at the options paper and see the different models that were floated back in the day, and this was one of them that they aimed to do. And that is not quite exactly how it worked out, we did end up with a small screen going up to 30, but feature films for cinemas have stayed at 40.

[00:07:36] Caris Bizzaca: And if we go through the key changes, Michele, can you run through those key changes that happened in 2021?

[00:07:46] Michele McDonald Yep, absolutely. I won't take long because there weren't many. So for non-theatrical features, the level of rebate increased from 20% to 30% of the qualifying Australian production expenditure. The 65-hour commercial cap was removed for drama productions and there was a minor shift to the wording around feature films in the actual legislation which added the word 'commercial', so feature films produced for commercial exhibition to the public in cinemas, you know, being eligible for the 40% rebate. So they were the only changes that went through, and that applies to productions that commenced principal photography from the 1st of July 2021, so from last year.

[00:08:30] Caris Bizzaca: And what does that mean for Screen Australia, those changes?

[00:08:36] Michele McDonald It affects all projects that come in for the offset. We took the opportunity, so we've updated our Producer Offset guidelines and we also took the opportunity to refresh them and modernise them, which we had been waiting for the reform to go through to do that. So yeah, I mean, I guess, you know, we're moving forward and assessing applications based on those changes.

[00:08:57] Caris Bizzaca: And Graeme, in doing this podcast and this video today, what would you like to get across to industry?

[00:09:04] Graeme Mason There's a couple of things. I mean, I guess I wanted to make sure that everyone understood a few things about the offset. It's vital for the sector, and it's vital we keep it and use it to the best of its ability for getting content made and as I said, hopefully helping businesses build as well. But I need people to understand, like the whole sector has been incredibly busy for the last two years. We've seen in the Drama Report and many other things, people talking about how they can't find crew because there's so much production going on. So let's think for a second, the Producer Offset team is also part of that chain, and in fact it's getting stuff which none of the others are dealing with, certainly at Screen Australia. Because projects might be eligible for the offset which are not coming in to other funders. So the volumes they're getting are huge. So I just need everyone to understand that they're processing more applications in the last nine months than normally they'd do in a year. So think that through. They're really busy. Then let's think about it on top. Most applications that come in 14 years into a scheme are incomplete or incorrect or not able to be assessed as they come in. That's just not possible. When you've got a huge volume and we're having to do the most basic thing of 'they're not dated'. The person who's filled in the form doesn't know what they're filling in - the wrong tax year, the wrong file numbers - each one of those drags back everybody else. So we certainly are looking at processes internally to work out how can we speed up and be more efficient - why are we asking for information, what are we going to do with it. But we need you to work on the other side to ensure you give us everything that we need. The key thing here to remember too, Screen Australia looks after this because we have great industry knowledge and we can liaise with the sector. But this is not Screen Australia funding. We are the agent for the ATO. It's a really key thing to remember. This is like you putting in your company tax return for the year. It has to be right. We've gone out of our way to try and work with people, and on the whole, people are very respectful of that. But they have to understand this is not Screen Australia funding. This is the ATO. You've got to all step up and do this better. That includes us, as I said. We've got to work out why we're asking for things and how that's going. But you have to get it right.

[00:11:28] Michele McDonald I might just add to that, one of the reasons we've updated the guidelines is we really did want to include some of the key issues that have been recurring over the last couple of years and just provide guidance to producers. So things around incurring expenditure, the interested parties, how we're assessing it. You know, guidance on general ledgers. So we really wanted to put more into the guidelines, update them as again to assist industry in understanding, you know, what we're looking for why and the best way to provide that.

[00:12:00] Caris Bizzaca: And we'll get into some of those elements in just a minute. With that kind of context section over, if we can just run through some more top line questions about the Producer Offset. So Michele, what parts of the screen sector do these changes that have happened impact the most?

[00:12:20] Michele McDonald I mean, everybody, non-features it affects because that rebate's increased from 20 to 30% and that's fantastic and everyone's really happy about that. The modernisation in the guidelines where we're talking about incurring expenditure and interested party - that impacts all applications. And again, we're seeing that across the board. We're seeing an increase in interested parties, an increase in questions around whether expenditure is being properly incurred. So that's just pretty much across the board.

[00:12:48] Caris Bizzaca: And so with feature films, what feature films can claim that 40% and what feature films can claim the 30%?

[00:12:57] Michele McDonald So I mean, it really is the same as it was prior really. And again we just wanted to update the guidelines in line with current industry practise. So it's really feature films and the wording in the act is 'feature films produced for commercial exhibition to the public in cinemas'. So it's about having a bona fide theatrical run in cinemas in Australia. And yes, so 40% is attached to that distribution pathway. And then what is eligible for 30% is pretty much everything else, any other eligible format. So content made for TV, for online. We are seeing feature films coming in that are just being made for the streaming services and they are eligible for the 30 which is fantastic. Documentary series made for the broadcast is eligible for 30. But that distinction is, again, as it always has been, about the pathway being for cinema distribution is what gets the 40.

[00:13:55] Graeme Mason It's interesting, some people obviously assume that they would like the feature no matter where it plays to get it. That isn't within our gift to decide that. You know, the legislation as it's set out is still very much feature films for commercial exhibition in theatrical cinemas. So that's just, you know, that is the landscape we're operating in.

[00:14:17] Caris Bizzaca: And that doesn't mean, you know, a one off screening or a couple of screenings. That means of a full kind of schedule in cinemas.

[00:14:24] Graeme Mason Well you need to have, as Michele was saying, it says for commercial exhibition to the public in cinemas. And so it's a question of where is this aimed for? So we need to be really clear on that, that it's like we're not saying don't make a 90 minute three act structure thing for a streaming service or a free to air network or YouTube. That's fantastic. We love those and it is great now they're getting 30%, not 20. And that's a fantastic opportunity. At the moment, there is a distinction from 30 to 40 and it's specifically driven by those things with the additional cost primarily of going for cinema, theatrical release.

[00:15:05] Caris Bizzaca: And so then kind of drilling down into that 40% a little bit more. What are the key areas that you look at when assessing a project that is eligible for 40%?

[00:15:17] Michele McDonald So again, this is something we updated in the guidelines and probably before I go through those, the challenge for Screen Australia is that we're often being asked to assess whether a project's eligible for 40 prior to it being made. And that's one of the reasons, I guess we do have guidelines that help us make that decision, because it's tricky, you know, before the film is made and the distributor knows what it's going to do with it. So the key things are listed in the guidelines. But I guess fundamentally it is about the distributor who's attached to the project and the distribution agreement in place and what the commercial terms are of that agreement. The marketing and sales plan is really important and we have really added emphasis to that under the new guidelines where we've spelled out just certain things we'd like to see in that. And again, that's just demonstrating, you know, the distributors intention on how they're going to get audiences into cinemas to see the film. We're looking at the track record of the distributor and the team making the film. Have they done this before? Are they in the business of distribution? That will help the finance plan and the extent to which that's substantiated and it has marketplace support. Anything else that the producer thinks is relevant, they can add that in. And what we're also asking producers to do under the new guidelines is just provide a statement to us that addresses each of those criteria as an opportunity to highlight what the strengths of the application are. So we look at all of that, and again, mostly we're looking at it before the film is being made. So we always say, we've been saying this for years, you know, the bar is very high at provisional. Not all films will be approved for 40 at provisional. But that doesn't mean it can't come back at final (certificate) and apply for the 40% once it's been released or once the deal's in place. It's just really, I guess for Screen Australia just wanting to be very clear, there's that pathway to cinema audience before we sign off on 40 at provisional.

[00:17:12] Graeme Mason There's this mistaken idea in the sector that there's a secret list of approved distributors and elements to these kind of deals, which there isn't. What the team are looking at, though, is 'what is the actual clear plan to get this into cinemas for that theatrical audience?' It's all about the audience who's going to pay to see this and where they're going to see it. And so it of course, it's much easier, what Michele and the team are looking for is that clear plan. Now, often from a larger existing distributor, they're in that business and it's very easy for them to say 'these are the kind of sessions would be looking for and this is how many'. And again, as Michele is saying, they're doing this in advance. The thing isn't even made, but they're in the business of doing that. It does not mean someone small couldn't be doing it or working on different distribution. There's been a lot of very successful ones of those. They're just going to have to work a little harder to be able to show us on behalf of the ATO that that plan holds water. And again, as Michele said, really clearly, if you want to wait, if you can finance it at 30, do that and then come back in and say, see, look what we've done. And then you can get the uplift to the 40.

[00:18:23] Michele McDonald And we're definitely seeing producers come in with 30% in their finance plan who don't have a distribution deal yet, don't want to get one yet and they just want to wait and they'll get a better deal further down the line. And it's better now. Like it's easier at 30 than 20 of course. So it is a real option.

[00:18:40] Caris Bizzaca: Great. And in terms of those applications, Michele, are there any areas that producers consistently miss?

[00:18:49] Michele McDonald Well, the new guidelines are still, I guess, new. So we're still, you know, road testing, our new provisional certificate application form. I mean, again, the marketing and sales plan is really important. So we really encourage producers to work with the distributors in really just hitting those points that we've outlined in the guidelines. The track record of the team and the distributor, you know, really that is about the track record of producing feature films. So great just to list that as much as you can. The additional thing that we've added around, just providing a statement, again, just really encouraging producers to just give that a bit of time and a bit of thought. It's a great opportunity to put the strengths of the application forward, and so far we've seen a couple that are just maybe just quite light-on, and that's fine. But again, you know, when you're looking at provisional, this is your opportunity to put as strong a case as you as you want forward. So we just encourage everyone just to take the time to go through everything.

[00:19:45] Caris Bizzaca: Don't waste that opportunity, really get it across.

[00:19:48] Michele McDonald Yeah. And I mean I think as Graeme said maybe just talking about the volume of applications we're getting, you know, moving forward, the aim is to get things through as quickly as possible. So we're not going back and forth with the producer and saying, 'Hey, do you want to add a bit more?' or 'Why don't you do this to strengthen it?' We'll really just be looking at what you've submitted and making a decision from that, and that's to help everybody get their applications faster.

[00:20:11] Graeme Mason I think that's really key to make sure that, again, as we're saying, we're really working on 'what is there in our processes which are being a drag on this?' But also we really need the sector to, as we said, try and make their applications perfect. But Michele is saying what I'm really keen that they're going to do is treat this very cleanly and efficiently. But that does mean rather than going backwards and forwards and almost helping people get their applications to the right position, we'll do a little bit of that, but we might do it twice and then that's it. Then we will assess on what we've got. In some people these applications are so- have so many holes, we may not be able to assess it, we may reject it. So it's really, really important that everyone understands to get everything in order very quickly, because, as Michele said, it's unfair to everybody else that there's so much time being taken on things that have holes in them.

[00:21:07] Caris Bizzaca: Yeah. And it's in the benefit for the producer as well because everyone's working against their own time constraints and deliverables and things.

[00:21:15] Michele McDonald Absolutely.

[00:21:16] Graeme Mason Also, we're not blind. We can see that there's a lot of problems at the moment because so many people have been so busy. We're all very aware that one of the sectors part of the sector, which is the most in need, is production accountants. If anyone has an accountant friend who wants to re-train to come into screen, please contact us all or a state agency any day now. So we do understand that a lot of productions, again, have been so busy and stressed that often they might give the role of putting in this application in to someone else in the office because a producer thinks, understandably, 'I've got other things I need to be doing.' I guess what I would be saying to them all is this is probably the most important thing you need to be doing. This is 30 or 40 per of your budget. I really think you need to focus on this. Don't just pass it down the line to someone in the office to look backwards at it. So we recognise the problems, but really this will speed everything up enormously. I just want to mentioned something else I think we need to put in somewhere in all of this, is, Michele doing what the offset team will always do and the legislation does. Film is not necessarily just about cinema films. Often in the act it talks about films and encompasses all screen content.

[00:22:28] Michele McDonald The term 'film' is used as a generic term.

[00:22:32] Graeme Mason So when we're talking about this, please don't think, 'Oh my God, I only make TV. I don't need to listen to any of this.' You should, because we're using film as a generic term for all screen content, because that's what the tax act says.

[00:22:44] Michele McDonald Yep.

[00:22:45] Caris Bizzaca: And so, Michele, what happens if a producer isn't sure whether their feature is a 40% or 30%?

[00:22:55] Michele McDonald Well, the best thing to do is to come in and you can apply for a provisional certificate, and that's where we can assess it against the guidelines and we can issue a certificate. And the schedule to that provisional certificate will say, 'yes, we've assessed your assessment as a feature film produced for commercial exhibition to the public in cinemas, and we think it is based on this criteria' or that schedule will say 'we're just not convinced at this provisional certificate stage' or the schedule will say, 'You haven't asked us to look at it.' So that is really the only way you'll know is coming in for a provisional. Or you can just come in for a final as well. You don't have to get a provisional.

[00:23:29] Caris Bizzaca: But if you do get a provisional certificate, what do people need to keep in mind before coming in and submitting for a final?

[00:23:39] Michele McDonald So that's a good point. So the provisional certificate approval is really based on what was put in front of us or what was shown at provisional. So the what we look at, at final (certificate) is we make sure that what you told us at provisional is still in place. And that is really important because if things have changed, then, you know, we need to understand what changed and why. But fundamentally, that provisional approval is based on, you know, the distribution deal at that time and the people involved in the making of the film. So we really try and stress that actually in the guidelines is if things change, come and let us know. So it final, if everything has remained the same then that's totally fine and you get the 40% final certificate.

[00:24:20] Caris Bizzaca: But what would be some conditions or examples where changes from that provisional to final stage have made something ineligible for 40%?

[00:24:30] Michele McDonald Hasn't really happened to date because people have been great and do let us know. But I think it is if you've signed up with a distributor and you get a better deal from somebody else and you decide to go with that deal and that might be with an SVOD, that might be with TV. It might just be another pathway for the film. I mean, again, I think that's an example. Come and talk to us. It's hard to kind of say black and white, what would knock something out. So we're always going to just need to look at the circumstances. But I think if if there are fundamental shifts in that pathway to a theatrical audience, then you need to let us know, and the film may be eligible for 30% then or would be eligible.

[00:25:10] Graeme Mason There can be other changes too which the team are monitoring, so we shouldn't forget SAC: Significant Australian Content. So for example, if you've been close to the line on SAC and then something fundamental changes, which we see. During COVID too, there was a huge moments where it was very hard to find some key cast and crew, and they replaced them, they replaced Australians with other nationalities. Those people can still help and still be qualified expenditure as long as it doesn't push you underneath the Significant Australian Content. So if you come in saying I've got all three Hemsworth brothers and then you suddenly make it with three guys from Ireland, you're going to be in trouble. I'm not saying you can't do it, but you should make sure you've come into the team on that, and we do see that a lot. Where there's changes in principal cast and crew.

[00:26:01] Michele McDonald And probably the other key thing is about your budget, because budgets change a lot as well and if you dip below the QAPE threshold, you know, that can impact your eligibility as well. So it's just keeping an eye on any kind of radical budget changes, too.

[00:26:15] Caris Bizzaca: Okay, and what material do you need to provide for final certificate stage? Is there anything new that's required under these new guidelines?

[00:26:26] Michele McDonald The final certificate application is quite thorough and we're actually just working on the new form at the moment, and that will be released shortly. You know, I guess it's a very thorough overview of the application. So we're looking at that all of the above-the-line contracts are in order to demonstrate that it's incurred. There are some additional requirements in relation to interested party expenditure and substantiating what that is. So for example, providing third party quotes for certain things or any benchmarking. We have added information in there about trying to educate and reiterate requirements for the general ledger and making sure there's enough information in there to assess. Generally speaking, what we've always had in is obviously the general ledger itself, which is the key expenditure statement - is a key part of the final cert application, as is the cost report and our fabulous final QAPE spreadsheet. So it is the final certificate application is quite expenditure heavy, but of course that's what we're doing. We're assessing it and we're, you know, determining QAPE and often it's for, you know, quite a lot of money.

[00:27:36] Caris Bizzaca: Yes and so then moving into some of the key issues around Producer Offset applications. So there's a new section in the guidelines that covers what 'incurred' the word 'incurred' means. Michele, why is this important?

[00:27:54] Michele McDonald Yeah, it's an interesting one, isn't it? So it's important because I mean, as Graeme said, this is a tax rebate and we administer under a tax legislation. So it isn't a grant. It operates under tax law. So incurring expenditure means that there has to be a present existing legal liability to pay the money. And that just seems so easy for me, it just rolls off my tongue because I've been saying it for so long now. But I guess there's just a firm commitment to pay that amount of money as opposed to, I don't know, an informal agreement or, you know, someone doing something as a favour to somebody else isn't necessarily incurred. So it's a really, really important fundamental principle of the offset. We've been talking about it for years and we really wanted to put something in the guidelines that just reiterated, you know, what that means and what people need to do to demonstrate that something is incurred. So it's just a really basic, very important principle.

[00:28:48] Graeme Mason I think it's an interesting thing there, it's just some people in the sector struggle a little bit with this because many, many people in our art world do things as favours for friends. It's how we've all got through things. You know, you're working on a film for no money or you're helping an artist put up their exhibition, and it's a normal way of getting stuff made. But we keep saying this, we're working under a tax law. It's not just how the screen industry works, so there's a bit of blurring around it, but just that classic thing of me going and helping someone and not getting paid, it just isn't incurred.

[00:29:25] Michele McDonald And I mean, how do we test what's incurred? And I think it's really good in the guidelines and hopefully it's really clear for people. But that's where we say, please provide a copy of the contract that tells us, yeah, what you did on the film, what are the payment terms, you know, what are the timing of payments? So we're looking at the contract. Is there a tax invoice that substantiates that contract? And if that isn't clear, then we do move to, 'Okay, great. Well, have you been paid? Can you show us evidence of payment?' You know, and we're not going to be asking for that every single time. I think it's really just if that that key contract, if there are any questions around it, then that's what we'll ask for. And look, really, there has been, you know, a number of instances over the last few years where it has come up as a question and we have had to look into it, you know, in more detail. And it does mean assessments take longer because it just hasn't been clear on those contracts. So again, we're really hoping this assists industry in going, okay, great, what do we need to do and how do we just get this buttoned down? But it is really important and it's just one of the basics that it'd be great to get out there.

[00:30:32] Graeme Mason And it's not just on salaries or wages to above and below the line, it's on other things. So like if someone loans you or gives you equipment or facility. Yes. Or footage, archival footage or location or any of that stuff. If there isn't actually the obligation to pay them then it's going to be struggling to be incurred. So you have to think that through.

[00:30:55] Michele McDonald And one more just point that I really wanted to bring up about incurring expenditure is about the timing that it's incurred. So it also needs to be incurred in the correct financial year and that kind of segues a bit to the completion of the film. And again, this is an area where we've just seen it, you know, quite a number of areas over the last couple of years. So the completion of a film is when the film is first in a state where it can be shown to audiences. And so what that means for us is we say, 'okay, tell us when your DCP has been struck or your digital cinema masters package has been, you know, is ready.' So it's really the end of that post-production process and that date determines which financial year your offset sits in. So if my DCP is struck on the 30th of April, then you're in the financial year, you know, that ends the 30th of June that year, unless you've changed it. And so expenditure has to be incurred in that financial year or in an earlier year. And the other thing that's come up for us recently is just again, the timing might be a bit blurred. So contracts might be dated in a new financial year, but the offset's sitting in the previous financial year so that's not matching up. So your film is completed on a certain date and you need to just be very clear then about what financial year that means for you and your expenditure has to be incurred in that financial year. One thing that the offset legislation does is it clearly, you know, it draws a line in the sand and it says you've only got til the end of the financial year to incur QAPE, after that you can't have any more. So that's really important.

[00:32:40] Caris Bizzaca: And there's also another section concerning arm's length dealings and interested parties. Michele, can you explain this and how exactly that is assessed by Screen Australia?

[00:32:52] Michele McDonald Yep, sure. So again, we put more information in the guidelines about this. A lot of this information was previously sitting in an external fact sheet, but we wanted to bring it all in. So there is a provision under the act or the legislation that talks about when one or two parties, a transaction is not conducted at arm's length, then Screen Australia looks at this and we can determine, you know, what QAPE is attributable to an arm's length amount if any. So it's when related parties or interested parties are charging services on the production. We just have to confirm that what's being charged is a market rate. And why this is important is we see a lot of interested parties in Producer Offset applications. It happens, I'd say pretty much in every single application, and that is totally fine. But the key thing is that the producers or applicants, you know, need to be able to substantiate that what they're charging is a fair market rate and, you know, they need to be able to substantiate that. So how we assess that- So firstly, sorry, who is an interested party? You know, you're looking at company directors of parent companies, anybody, an equity investor, anyone with an interest in the Producer Offset, you know, for example. So producers, EP's, etc. are considered interested parties. So what we ask for is one of the key things is good old Worksheet E of our final QAPE spreadsheet. We haven't changed the letter in a long, long time. So everyone would be very familiar with Worksheet E, and that's a breakdown of all of the interested party expenditure. And in our new final application form, we're just asking for a list of the interested parties, a break down, all of the agreements in place. And we are now asking for some third party benchmarking or third party quotes just to show well, how have you budgeted this against market rate? And asking producers to demonstrate that.

[00:34:52] Graeme Mason So a few more examples would be often again, people are trying to make things, you know, in their spare time and they make them at weekends. So you might spend 26 weeks making your show, but using your own camera equipment that you've got at home. You can't charge that out at 26 weeks of weekly rental, right? Because another independent low budget film wouldn't do that. They'd make the whole thing in 14 days because that's all they've got. So we're not picking on people. It just has to be 'what would an equivalent project pay if they were making this show for that location, for the camera hire, for the weekly fees, the whole kit and caboodle?' What would be appropriate, not what you're worth, nor even what your time took. We're not commenting on that. It's just what would someone else do?

[00:35:44] Caris Bizzaca: And then showing how you actually came up with that by providing documentation.

[00:35:46] Michele McDonald And again, we we're not, I guess, making any comment on your budget. So we always say you can put whatever you want in your budget and you can pay people whatever you want. So we're assessing QAPE only. And the rebate is based on the market rate, as Graeme said, and the length of time is a really important thing as well as the work. And another good example of that is post-production. And sometimes, again, if someone's doing it independently, it might be a year of doing their post, but again, you know, it's unlikely you would get approved for a rebate of a year's worth of work where it would be sixteen weeks under an arm's length arrangement, etc.

[00:36:25] Caris Bizzaca: How then does Screen Australia assess producer fees?

[00:36:29] Michele McDonald Well, I guess that is part of interested parties. So we'll look at, you know, what's been provided by the producer, what are the fees being charged, you know, and we'll be asking the producer again, like, 'how did you come up with these figures? Were these benchmarked against other films?' We work with external consultants who we call independent film production consultants, our IFPC's, and they are line producers and production managers working in the industry. And we'll take their advice. They will make recommendations to us on QAPE claims and we'll also look at the experience within the agency as well. So it's a mixture of all things and it's just, you know, obviously depending on the film itself and the size of budget, etc.. But it is a tricky one. And again, just the more the producer can provide to us that just substantiates what's been claimed as what and why, then that's really helpful.

[00:37:20] Graeme Mason And again, it's really worth pointing out here two things that Michele said. We see an enormous volume of projects, so it gives us a pretty good understanding. So these are not just Screen Australia projects. The Offset team see so many, but also again, this is not casting any criticism on the people involved in making that production or how many of them were or their work or what they did. It's just saying, would someone else making a project of that scale and size and how many people would they have on it? How many could they afford to have on it? Because this is the whole thing. I mean, it's really important. The Producer Offset is an essential thing for the sector here. We've got to treat it with unbelievable respect and especially, it's the ATO's money. That's who we have to go back to.

[00:38:05] Caris Bizzaca: And just to clarify on that point,  you were saying before, Graeme, so you're saying people can pay their crew and things, whatever they want, but in terms of what is actually going to be included as QAPE and therefore part of the Producer Offset, that's what you're assessing.

[00:38:25] Graeme Mason Correct.

[00:38:26] Michele McDonald And I might just actually add to that with interested party, because we see a lot of it. I would say at least maybe 30% of most budgets have interested party in them. So we're dealing with it on every single application. And just kind of going back to the point about expenditure being properly incurred, really important. It's important for all expenditure but for interested parties as well. When you're dealing between two related companies or an SPV and a parent company, just having any expenditure really properly documented and contracted with all of the details of the role and the fee, etc., again, would just help us assess that kind of arrangement really quickly. And we've seen over the years that sometimes just because it's, you know, two companies that know each other dealing with one another, it might just be light on as far as contracting and agreements and things, but for us it just means again, it just slows us down and we're then having to ask questions and impacts whether something can be QAPE or not.

[00:39:24] Caris Bizzaca: And so then a bit more advice. Michele, what advice do you have around general ledgers? You mentioned this before.

[00:39:32] Michele McDonald So we've put more in the guidelines around that as well. So your general ledger is, you know, your key expenditure statement that we review and we call it the Bible in POCU and it actually tells you everything about a production. It's really important. So the more detail that is in that general ledger, then the better it is for your application and for your film. So an assessor is going to be looking at a general ledger, not knowing anything about your film. So if we see lump sums or just information that doesn't have, you know, comments on it or tell us what it is, again, it just jumps out and it becomes questions that we, you know, need to ask. And it might be, I don't know, $30,000 for office supplies. Okay, so what is that? Or, you know a location fee for $50,000 with no information about what it is. So all of a sudden you're going to be getting from an assessor like 20 questions because we just don't know what the expenditure is. And you know, we've been saying this for a long time that the general ledger, getting that right is just so important. And the more you can do that as you go along and this doesn't have to be a production accountant, this can be your bookkeeper or it can be a production assistant that's just inputting that information as production goes and just capturing that detail as you go, because it's so hard when you get to the end and you have to go back and try and remember what it was. So having somebody on the ground who's just doing that as you go through it really helps. But it is again incurring expenditure, related party, and the general ledger, they're just the three really core principles that will just help us all.

[00:41:12] Caris Bizzaca: And from an assessment point of view, are all projects assessed the same way at Screen Australia, Michele?

[00:41:20] Michele McDonald So it just depends, I guess, on the scale of the project. So a larger budget film may, we might send that out to an external consultant to have a look at, something with a lot of interested party, might also go out to a consultant to have a look at. We do some of the more straightforward applications internally in order to, you know, get them out quite quickly. So something that's made in Australia with a relatively low amount of interested party, we can do that quite quickly internally. So there are different assessment pathways and it's probably another good point to raise is that again kind of like the ATO, some things are assessed in more detail than others and what determines that again is the project and the details of that. So we'll see that something might be more scrutinised on one project and less scrutinised on another. And again, I guess like the ATO, we just, we don't want to have to go through everything with a fine tooth comb and there'll be certain elements that that will make us look at one project more closely than another and we think that's okay. Like we're assessing it on a kind of risk management basis, I guess.

[00:42:28] Graeme Mason I know one of the things the sector often talks about generally is about certainty, and that they need, like with financing or distribution or anything. It's something we can't give them absolute certainty on because again, as Michele is saying, if you put in your tax return in 2022, it's almost certainly not going to be the same person in 2023 who looks at again. The odds of you getting the same assessor, now we're smaller than the whole taxpayer public in the country, but we've still got a team here of internals and externals. So yes, there can be variances. Sometimes something might have been approved once and then you get pulled up the next time asking for questions. I'm sorry about that, but I can't do anything other than, it's come to our attention. So we try, and obviously Michele is very good with the team, anything big or of note, the team meetings always discuss the treatment of something, so we understand to try and make as clear as we possibly can to get consistency. Yes, but there will be unusual circumstances that will make things vary from time to time.

[00:43:31] Caris Bizzaca: And so just a couple of questions then to wrap up, what are the biggest issues that you see time and time again with applications?

[00:43:43] Michele McDonald I've got a list.

[00:43:45] Caris Bizzaca: Just consult your list?

[00:43:46] Michele McDonald Yeah, no, so obviously the first phase is when an application hits us is it goes through what we call a logging phase. And that's when one of our team will just look through it and make sure everything's looking okay and ready for an assessor. I guess it even at that point, there are things that pop up such as just blank documents attached to an application or dates missing or, you know, expenditure figures not matching different areas. So it's really just the basics. And that obviously means Ruth or whoever's in our team assessing that, there's an email chain going back and forth and that takes time. With provisionals, probably again, just being really clear on the nationality and residences of the crew making the film. So we always say, and this is part of the SAC test, you don't need to list the names necessarily, but we do need to know the expected residency and nationality, and that's something that we need to chase up a bit because sometimes that's just left blank. And you know, the production dates, again, we understand that that changes. But often we're kind of chasing up production dates. When we're looking at 40%, we just find that some things are just not answered. So it's just missing questions or again, blank documents are submitted, so that again just kind of holds us up or just documents that may be just answer a little bit of the question and not all of them. And then for final certificates, the final certificate application is very, as I said before, expenditure based. So I know that one of the things is that our team logging really comes up against is just one figure here, you won't match this figure and it might be the general ledger versus the cost report versus the QAPE spreadsheet, and there might be a reason. So maybe just tell us why. But again, we ask that team to look at it before it comes through to an assessor. For finals again, you know, there'll be expenditure being claimed that have no contracts or you know will be asking for a contract and a contract just appears. So that's something we chase up, you know, really important that break down of interested party is just a cut and paste from the general ledger but what we're asking for is, is a summary of that interested party, so we can just see, you know, for example, a production manager is being paid $1500 a week for ten weeks, and so we can just really clearly see what the breakdown is. And the other one that's been coming up lately is, again, just getting that completion date correct. And then also having your financial year date correct as well. We're seeing more and more substituted accounting period end of financial year dates, which is where producers can alter the end of financial year. And that's been really helpful to the industry. But just really making sure your completion date fits in with whatever that end of financial year date is. And for finals sometimes as well the other thing we've been saying is just the finance plan not being substantiated. So we do ask to see the finance agreement so we can just confirm the cash flow, and sometimes it might be things, you know, like grants that haven't come through or accounts payable in the finance plan. And yeah, so we're chasing that up as well.

[00:47:02] Graeme Mason There's another really good one too that I find for poor Michele, it's the person who actually applied their name is who we can talk to, because this is under tax secrecy. And so then you might even be the principal of the company. You might be the producer, but if your name wasn't on the application, they can't talk to you. So then that involves a whole other thing of going back to the person who actually put the original application in who maybe has moved on. So you really have to think this through. We don't mind if there's multiple names on the original application-

[00:47:34] Michele McDonald Put on as many as you like.

[00:47:36] Graeme Mason  Even if you're giving it to someone else to do the original application, check it. Do you think it's complete? Is it correct? Is your name on it? So down the line we can talk to you.

[00:47:48] Caris Bizzaca: And with all those little things that you mentioned, say things that were missing, instead of putting in an incomplete application, can people just call Screen Australia and say, 'Hey, I have a question about this particular aspect of it? I'm not sure what you know, my production date's moving. What do I put there?'

[00:48:09] Michele McDonald Yes, absolutely. So we have a great coordinator. You know, there are eight assessors. So what we can't do is give you a determination on whether something's eligible or not over the phone. And we can't usually tell you if something's QAPE or not. So we need to see it. But if there's a question around the forms, then absolutely give us a call. Or how should you treat something when you're not sure on what your production schedule is? You know, give us a call. And I mean, we understand, like producers want to get the applications in to get in the queue. Like we understand they want to get that process started. But putting in something incomplete, it's not actually going to help you, it will just slow it down, it just means it will get sidelined by an assessor who'll be working on something that's ready. So I think it does pay to just have it as complete as you can before you hit the button.

[00:48:59] Graeme Mason So I think the big thing for me would be just for people to remember the reason we do this rather than the ATO doing it or the department doing it is because we have a lot more understanding and facing of the sector. So we get what you all are trying to do and we appreciate it better than anyone else would. But ultimately we have to get you and work with you to operate under the terms of the ATO and the legislation. And that's the best way to make the most of this incredible thing which we've got here, the Producer Offset.

[00:49:30] Caris Bizzaca: And so then just lastly, what further tips do you have for producers, any kind of final words of advice for producers?

[00:49:39] Michele McDonald I know I sound like a broken record. I'm sorry, but just take care with what's submitted. Just have a look. Just know what's being submitted. Make sure your contracts are in place. Have a look at the general ledger. It really will help. I had listed, you know, Graeme's mentioned it, list anyone on the application form who's likely to enquire about your application. You can put multiple people there. We get so many calls from people who are not listed. And then again, we have to say, 'can you please give us permission?' And it's we get heaps of those calls so just put on anybody you think may be enquiring or is involved in the application. Just checking that correct completion date and in the financial year, it's incredible how often they're incorrect, to be honest. Check that your company details are up to date, ABNs correct, all that kind of thing. Because what happens if they're not correct, it gets stopped when it goes to the ATO anyway. So it's really hard for us to re-issue a final. It's a bit of a palaver, so just try and make sure that's correct. You know, and I think just the, you know, the final message would be given the volume of applications we're receiving, moving forward, we will be reducing the back and forth with everybody and really just doing our best to assess things based on what's put in front of us. So, you know, and the reason we're doing that again is to just get things through as quickly as we can. So I think it's just take the opportunity - if you're coming in for 40 at provisional, have a look at every single question. Get that statement really great. And that's your best kind of bet.

[00:51:12] Caris Bizzaca: Fantastic. Well, we'll leave it there. Thank you so much for joining us today to talk about Producer Offset.

[00:51:17] Michele McDonald Thank you.

[00:51:18] Graeme Mason It's been great to be here.

[00:51:22] Caris Bizzaca: That was Screen Australia CEO Graeme Mason and Michele McDonald, the senior manager of the Producer Offset and Co-production Unit. Remember to check out the Producer Offset funding page in the show notes for more information and to subscribe to the fortnightly Screen Australia newsletter to keep up to date with new initiatives, opportunities, videos, articles and more. Thanks for listening.