New film production offsets
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New Division 376 of the ITAA 1997 (enacted on 25 September 2007) provides for the:
- enhancing of the existing RFTO for QAPE (the location offset)
- introduction of a refundable film tax offset for 'post, digital and visual effects production' in Australia (the PDV offset), and
- introduction of a refundable tax offset for Australian expenditure in making Australian films (the producer offset).
Commencement and application of the tax offsets
The location offset applies to films commencing principal photography or production of the animated image on or after 8 May 2007.
The PDV offset applies to post, digital and visual effects production for a film that commences on or after 1 July 2007.
The producer offset applies to QAPE incurred on or after 1 July 2007 or QAPE incurred before 1 July 2007 to the extent it is attributable to goods and services that are provided after 1 July 2007.
The offsets are available to the production company which is responsible for a film's QAPE, provided it is:
- an Australian resident company, or
- a non-resident company with a permanent establishment in Australia and an ABN.
In order to claim the location or PDV offsets, the production company must first obtain a certificate of eligibility from the Minister of the Environment, Heritage and the Arts.
In order to claim the producer offset, the production company must first obtain a certificate of eligibility from Screen Australia.
Key eligibility criteria
The location offset is a refundable tax offset of 15% of a film's QAPE incurred on films. Where the QAPE is more than $15 million but less than $50 million, the offset is to be claimed in the income tax return for the income year in which the production expenditure on the film ceased to be incurred. Where the QAPE is at least $50 million, the offset is to be claimed in the income tax return for the income year in which the QAPE ceased being incurred.
The PDV offset is a refundable tax offset of 15% of a film's qualifying Australian production expenditure that relates to the post, digital and visual effects production of a film. The offset is to be claimed in the income tax return for the income year in which the PDV expenditure has ceased being incurred.
The producer offset is a refundable tax offset of 40% of a film's QAPE for Australian feature films and 20% where the Australian film is not a feature film. The offset is to be claimed in the income tax return for the income year in which the film is completed.
Certification and how to access the film tax offsets
For the location and PDV offsets, eligible film production companies will need to apply for a certificate of eligibility from the Minister for the Environment, Heritage and the Arts. Applications are considered by the Film Certification Advisory Board, comprising industry representatives and a senior official from the Department of the Environment, Water, Heritage and the Arts, which advises the minister on whether to issue certificates of eligibility.
For the producer offset, eligible film production companies will need to apply to the FFC for a certificate of eligibility.
The minister and the FFC have the power to revoke a certificate in cases of fraud or serious misrepresentation. In such a case a revocation by the Minister for the Environment, Heritage and the Arts would require a full repayment of any tax offset given. Decisions not to issue or to revoke a certificate previously issued are reviewable in the Administrative Appeals Tribunal.
Further information regarding location and PDV tax offsets, including certification, can be obtained from the Department of the Environment, Water, Heritage and the Arts - see below.
Further information regarding producer offset certification can be obtained from Screen Australia (www.screenaustralia.gov.au).
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In the absence of fraud or serious misrepresentation, a final certificate of eligibility guarantees the film's entitlement to the film tax offsets.
How the tax offsets affect other concessions
Only one of the film tax offsets can be claimed for a film.
Where a film tax offset is claimed, other incentives - such as deductions under Division 10B or Division 10BA - become unavailable. Conversely, a film tax offset is not available if a deduction is claimed under Division 10B or Division 10BA.
A FLIC is not able to invest any of its concessional capital in a film production that will claim the offset.
In relation to the RFTO the Commissioner has issued taxation determinations on the treatment of certain insurance costs (Taxation Determination TD 2006/2) and freight costs (Taxation Determination TD 2006/3 - Income tax: to what extent are freight costs included in 'qualifying Australian production expenditure' within the meaning of section 376-40 of the Income Tax Assessment Act 1997?). For further information on these and other public rulings mentioned, see our website.
Application details, guidelines and eligibility criteria are also available on the Department of the Environment, Heritage and the Arts website at www.arts.gov.au/film/australian_screen_production_incentive
Last modified: 07 Aug 2009QC 21782
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 2007/71 - Income tax and fringe benefits tax: Product Rulings system.
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