To qualify for a Division 10BA deduction, you must be a resident of Australia who:
- outlaid capital expenditure in producing the film or as a contribution to its production
- consequently became the first owner, or one of the first owners, of the copyright of the film, and
- intended to use the copyright to produce assessable income from public exhibition in cinemas or by way of television broadcasting.
The Minister for Communications, Information Technology and the Arts must certify the film as a qualifying Australian film. It must be:
- an eligible film - that is, a film produced wholly or principally for the cinema or television which is a feature film (including an animated feature film), a documentary or a television miniseries, and
- an Australian film - that is, one with a significant Australian content made wholly or substantially in Australia or an external territory, or a film made as a result of an agreement between the Australian Government and a government of another country.
An Australian film assessed as having significant non- Australian content may be refused certification.
Ultimately, eligibility for a deduction depends on a final certificate being issued when the film is completed. However, you may claim a deduction on the basis of a provisional certificate.
Deductions for expenditure or contributions
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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You may be eligible for a deduction under Division 10BA for the whole of the amount you expended or contributed under a contract entered into after 24 May 1988. Your deduction is limited to the amount of your contribution that is spent directly on the production costs of the film.
Under Division 10BA a deduction is generally allowable for capital spent to produce a film or contributed to the cost of its production. The deduction is allowable in the year in which you made your payment.
In any given year other deductions for expenses relating to the film investment, such as interest payable on the money 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 will be later disallowed if the following conditions set out in Division 10BA arise:
- the film does not receive a final certificate from the Minister for Communications, Information Technology and the Arts certifying that the film is a qualifying Australian film, or
- the film is not exhibited commercially within two years of the end of the income year in which capital was 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 two-year period and you have not derived assessable income under an agreement granting another person the rights to exhibit the film.
Investors can claim a deduction only for capital spent directly in producing the film. To meet this requirement both the following circumstances must occur:
- There must be a production contract or an underwriting contract which secures funds equal to the estimated cost of producing the film. The production contract (or underwriting contract) must be in place before the end of the income year in which investors first spent money on producing the film or first contributed to its cost.
- An appropriate person - usually the producer - must lodge a declaration before 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 a notice of amended 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, incorrect return penalties and a general interest charge may also apply.
Deductions for investors who take the place of an underwriter.
An investor in a qualifying Australian film who takes the place of an underwriter before the film is completed may be eligible for a deduction. Your contribution may still be treated as being for the costs of producing the film. As long as the requirements outlined in the Deductions for expenditure or contributions section of this publication are satisfied, the investor will be allowed a deduction in the year in which they contribute to the cost of production.
Proceeds from film investment
Under Division 10BA, receipts from the film - whether from Australia or overseas - including amounts received on the disposal of the whole or part of a copyright, are assessable income. You may be entitled to a partial exemption if you were allowed a deduction under a contract entered into before 25 May 1988.
Division 10BA does not apply in working out the net income or loss of a partnership. Any capital expenditure is treated as having been expended in accordance with any agreement between the partners or according to each partner's interest. Film income is apportioned to each partner in a similar manner.
You can offset film losses carried forward from prior years only against film income. A film loss arises when you have a tax loss in an income year and when your film deductions (that is, your Division 10BA deductions and your other deductions for expenses relating to your Division 10BA investment) exceed the sum of your assessable film income and your net exempt film income. The film loss is either the tax loss or the difference between your film deductions and the sum of your assessable film income and your net exempt film income, whichever is less. A film loss cannot be deducted from income other than film income but can be carried forward and deducted from film income in future years. You can carry forward film losses you incurred in 1989-90 and subsequent income years for an unrestricted period.
Information to be kept by investors
You need to be able to provide the following information if we request it:
- the title or proposed title of the film
- the date of issue of the provisional certificate or, if the film has been completed, of the final certificate
- the certificate number
- the completion date or proposed completion date of the film
- details of your contribution or expenditure, including
- the date of any contract under which you made the expenditure
- the date and the amount you paid
- the name and address of the person you paid
- whether you paid the amount in place of an underwriter
- details of your interest or expected interest in the copyright arising out of your expenditure on the film
- details of all income derived from the film, including any amounts you received or will receive from the disposal of all or part of your interest in the film's copyright
- details of arrangements or proposals under which you may expect to derive income from the film
- the name and address of the entity producing the film the name and address of the person who lodged or will lodge the necessary declaration in relation to the film
- the tax office at which the declaration was or will be lodged.
Additionally, if a claim for a deduction is for any amount paid by a partnership of which you are a partner, you need to be able to provide the following information:
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- the name and tax file number of the partnership
- the tax office where the tax return of the partnership was or will be lodged.