Division 10BA deductions are available to investors in a film that has been certified by a provisional certificate or a final certificate as a 'qualifying Australian film'.
To qualify for a Division 10BA deduction, you must be a resident of Australia who:
- expended capital monies in producing the film or as a contribution to its production
- expected to become 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 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 - 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 mini-series, and
- an Australian film - a film 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.
End of attention
A Division 10BA deduction is generally allowable for capital monies spent to produce a film or contributed to the cost of its production. Your deduction is limited to the amount of your contribution that is spent directly on the production of the film.
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 from that film 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 on the basis of a provisional certificate 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
- the film is not exhibited commercially within two years of the end of the income year in which capital monies were first spent to produce the film or were contributed to the cost of producing the film, or
- 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 monies spent directly in producing the film or contributed to the cost of producing a film. For deductions to be available for capital monies contributed to the cost of producing a film, both of the following must occur:
- There must be in place a production contract, or a production contract and an underwriting contract or contracts, and the production contract must specify how the capital monies contributed will be expended in producing the film, or by way of contribution to the cost of producing the film.
- An appropriate person - usually the producer - must lodge a declaration stating that a contract for the production of the film has been entered into and that a person has or persons have agreed to expend an amount specified in the contract as the estimated cost of producing the film, and detailing how the qualifying contributions have been or will be dealt with. You must lodge the declaration before one month after the end of the income year in which funds are first contributed towards the production of the film. 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 of Taxation can amend assessments disallowing claims made under Division 10BA at any time. In the event of an amended assessment, false or misleading statement penalties and an interest charge may also apply.
Deductions for an investor who takes the place of other investors
An investor in a qualifying Australian film who takes the place of another investor before the film is completed may be eligible for a deduction. The replacement investor's contribution may still be treated as being for the costs of producing the film. As long as the requirements outlined in Deductions for expenditure or contributions are satisfied, the replacement 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 against film income only. 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.
Last modified: 14 Aug 2006QC 18463