Deductions for expenditure or contributions
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You may be eligible for a deduction for the whole of the amount you expended or contributed under a contract entered into after 24 May 1988.
Under Division 10BA a deduction is generally allowable for capital moneys spent to produce a film or contributed to the cost of producing it. The deduction is allowable in the year the money is spent or the contribution made.
In any given year other deductions for expenses, such as interest payable on the moneys used to make the capital contributions, are limited to the amount of film income for that year. Subject to this limitation, any unused deduction can be carried forward and applied against income from the film in future income years.
Investors and potential investors should be aware that while an up front deduction can be claimed, this deduction is only allowable if the following conditions set out in Division 10BA are met:
- the film must receive a final certificate from the Minister for Communications, Information Technology and the Arts certifying that the film is a qualifying Australian film and
- it must be exhibited commercially within 2 years of the end of the income year in which capital moneys were first spent to produce the film or contributed to the cost of producing the film or
- if the copyright of the film did not come into existence within the relevant 2-year period you must have derived assessable income under an agreement granting another person the rights to exhibit the film.
Investors can claim a deduction only for capital moneys spent directly in producing the film. To meet this requirement both the following circumstances must occur:
- Investors must enter into a production contract-or an underwriting contract-to secure funds equal to the estimated cost of producing the film before the end of the financial year in which they first spent money on producing it or first contributed to its cost.
- An appropriate person-usually the producer-must lodge a declaration within one month after the end of the income year in which funds are first contributed towards the production of the film. This declaration must show evidence that qualifying contributions have been, or will be, dealt with appropriately. An extension of time to lodge the declaration may be granted.
If your film investment does not meet the requirements of Division 10BA, any deductions you claimed for it will be withdrawn. You will receive an amended notice of assessment for the relevant years disallowing the deductions. The Commissioner can amend assessments disallowing claims made under Division 10BA at any time. In the event of an amended assessment, additional tax for late payment will accrue from the due date of the amended assessment until paid in full. Incorrect return penalties may also apply.
Note: To provide greater certainty for investors the ATO has introduced a Product Rulings system. Promoters of an investment can apply to the ATO for a ruling on the availability of the investment's claimed tax benefits. Potential investors may wish to approach their film promoter for details of any applicable product ruling. More information about the Product Rulings system is provided in Product Ruling PR 1999/ 95-Income tax and fringe benefits tax: Product Rulings system.
Last modified: 10 Dec 2001QC 16170