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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Foreign source income - limitation of Division 10B and Division 10BA deductions

    Receipts from the exploitation of a film overseas are foreign income. Any intention to receive foreign income could make a Division 10B or a Division 10BA deduction that would otherwise be allowable a 'foreign income deduction' and subject to quarantining measures. Taxation Determination TD 2004/29 - Can section 79D of the Income Tax Assessment Act 1936 operate to limit deductions available under Division 10B or Division 10BA of Part III of the Income Tax Assessment Act 1936? outlines the Tax Office's position on the limitation of Division 10B or Division 10BA deductions in these cases.

    Deduction safeguards

    There are safeguard provisions to ensure that Australian film industry incentives are not exploited. Two examples are:

    • Expenditure qualifying for the Division 10BA deduction is limited to amounts that the investor may lose if the film venture fails.
    • The Tax Office must be satisfied that the deductions claimed under Division 10B or Division 10BA have not been inflated as part of a non-arm's length transaction.

    Tax offset for film production in Australia

    Under Division 376 of the Income Tax Assessment Act 1997 companies can claim tax offsets for qualifying Australian production expenditure on films completed during the year. The offset is available for feature films and television miniseries produced for cinemas, television or other forms of public release (including satellite, cable, tapes and DVDs) and amounts to 12.5% of the company's qualifying expenditure on each film project.

    The eligibility requirements include a film having:

    • certification by the Arts Minister that it was completed on or after 4 September 2001
    • a minimum qualifying expenditure of A$15 million, and
    • 70% of the total expenditure spent on production activity in Australia - where qualifying expenditure was between A$15 million and A$50 million.

    Films with Australian production expenditure over A$50 million will automatically qualify for the offset.

    If the tax offset is claimed, other incentives, such as funding from the Film Finance Corporation or deductions under Division 10B or Division 10BA of the ITAA 1936, are not available. The tax offset is not available if deductions are claimed under Division 10B by the company or someone else, or if a provisional certificate or final certificate for the film has been issued under Division 10BA. A film licensed investment company (FLIC) cannot invest any of its concessional capital in a film production that will claim the tax offset.

    To access the tax offset, film production companies must apply to the Department of Communications, Information Technology and the Arts for a certificate of eligibility from the Arts Minister.

    For a fact sheet about the tax offset, visit the website of the Department of Communications, Information Technology and the ArtsExternal Link.

    On 13 April 2005, the Government announced that the tax offset for film production would be extended to big-budget television series. The change will apply for expenditure incurred on eligible television series from 1 July 2004. Full guidelines and eligibility criteria will be available on the Department of Communications, Information Technology and the Arts' website once the legislation has been passed.

    Film licensed investment company

    The film licensed investment company (FLIC) tax concession allows certain returns of concessional capital (that is, capital invested in a FLIC during its licence period) to be treated as franked dividends. If you are an investor in a FLIC, you may have received a notice from the company advising that it is returning to you an amount of concessional capital that is, for tax purposes, a franked dividend. The FLIC will advise you of the amount of your dividend and the franking credit.

    Note: To provide greater certainty for investors, the Tax Office has introduced a product rulings system. Promoters of an investment can apply to us for a ruling on the availability of the tax benefits claimed by the investment. Potential investors may wish to approach their film promoter for details of any applicable product ruling.

    More information about the product rulings system is in Product Ruling PR 1999/95 - Income tax and fringe benefits tax: Product rulings system.

    Last modified: 16 Mar 2020QC 18056