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Edited version of your written advice
Authorisation Number: 1012727872322
Ruling
Subject: Depreciation; Investment in Australian film
Question
Are you entitled to deduction for the decline in value (depreciation) for the cost of investing in an Australian film, where your investment entitles a share in the copyright?
Answer
Yes
This ruling applies for the following period
1 July 2013 to 30 June 2017
The scheme commenced on
1 July 2013
Relevant facts and circumstances
The arrangement that is the subject of this ruling is described below. The following information has been relied upon to reach a decision:
• your application for private ruling
• further information provided in a telephone conversation.
You invested a sum of money in an Australian feature film in the hope that the film will be financially successful. You paid these funds into the production account.
Your investment entitles you to a share of the copyright in the film.
You have an Investment Deed acknowledging your investment.
You do not currently hold any other film investments not have you held any film investments in the past.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 376
Income Tax Assessment Act 1997 subsection 40-45(6)
Reasons for decision
If you acquire copyright in a film, or an exclusive licence relating to copyright in a film, from 1 July 2004 you can choose to claim your capital allowance deductions under the Uniform Capital Allowances (UCA) rules.
The Commissioner has made a determination that the effective life of copyright in a feature film (not including a licence relating to the copyright in a feature film) is five years. The effective life write-off applies to copyright in a film acquired on or after 1 July 2004.
The effective life of a depreciating asset is the period the asset can be used by anyone for income producing purposes assuming:
• wear and tear on a reasonable basis, and
• maintenance in reasonably good order and condition and having regard to likely scrapping practices.
You can choose to use either the 'prime cost' or 'diminishing value' methods to calculate the decline in value of copyright in all types of films.
The effective life of a copyright in the film can be recalculated on a prospective basis if there is a change in circumstances relating to the nature of use of the asset. This might occur, for example, if there is an unexpected demand or lack of success for a film that is the subject of the copyright. For example:
On the release of a feature film, the holder of the copyright in the film chose to use the Commissioner's estimate of effective life of five years. It became evident within a very short time of release, however, that the film was unsuccessful in that it was unable to attract public patrons. It was, consequently, withdrawn from public viewing with no prospects of alternative viewings. The holder of the copyright would be able to recalculate the effective life of their copyright taking into account the unsuccessful nature of the film.
In your case, you have incurred capital expenditure in acquiring an interest in the copyright of a feature film. You expect to receive income from the commercial exploitation of your copyright interest in the film. As a holder of copyright in a feature film (not including a licence relating to copyright in a feature film), you can choose to:
• use the Commissioner's determined effective life of five years, or
• self-assess the effective life of the copyright.
For a company making an Australian film, the cost of the copyright is reduced by the amount of any Producer offset available. As an individual investor, where your investment entitles you to an interest in the copyright of a film, your claim for depreciation is not affected by the producer's offset.
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