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Edited version of your written advice
Authorisation Number: 1051190952718
Date of advice: 1 March 2017
Ruling
Subject: Whether a PDV offset is income
Question
Is the receipt of a refundable post production, digital and visual tax offset (PDV offset) assessable income, non-assessable non-exempt income or subject to income tax?
Answer
No
This ruling applies for the following period
Year ending 30 June 20YY
The scheme commenced on
1 July 20XX
Relevant facts and circumstances
The company was established to undertake post production digital and visual effects activities in Australia.
The company is currently completing the audit of its qualifying Australian production expenditure (QAPE) and upon completion will lodge the relevant application for the post, digital and visual effects offset with the Relevant Minister. It is anticipated that this will occur prior to the end of the 20XX-YY income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 4-10
Income Tax Assessment Act 1997 section 4-15
Income Tax Assessment Act 1997 section 6-1
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 section 11-55
Income Tax Assessment Act 1997 section 63-10
Income Tax Assessment Act 1997 Division 67
Income Tax Assessment Act 1997 Division 376
Reasons for decision
Section 4-10 of the Income Tax Assessment Act 1997 (ITAA 1997) tells you how to work out how much income tax you must pay.
Subsection 4-10(3) of the ITAA 1997 tells you how to work out your income tax for the financial year using the method statement as follows:
Step 1 - work out your taxable income for the income year (to work out your taxable income see section 4-15)
Step 2 - work out your basic income tax liability on your taxable income tax using:
(a) the income tax rate or rates that apply to you for the income year; and
(b) any special provisions that apply to working out that liability.
Step 3 - work out your tax offsets for the income year. A tax offset reduces the amount of income tax you have to pay.
Step 4 - subtract your tax offsets from your basic income tax liability. The result is how much tax you owe for the financial year.
Tax offsets, sometimes referred to as rebates, directly reduce the amount of tax you must pay. Each dollar of tax offset reduces your tax payable by a dollar regardless of your taxable income.
Most tax offsets only reduce your taxable income to zero. There are however some tax offsets which are refundable. Refundable tax offsets allow for a refund if the offset is greater than the tax you are liable to pay on your taxable income.
Section 63-10 of the ITAA 1997 lists in a table the order in which you are to use offsets if you are entitled to more than one offset. It also tells you what happens with any excess. Item 40 in the table states you can get a refund of the remaining amount if you get a tax offset that is subject to the refundable tax offset rules under Division 67.
Division 67 states film tax offsets available under Division 376 of the ITAA 1997 are subject to the refundable tax offset rules. The refundable tax offset for post, digital and visual effects production for a film (PDV offset) is included under Division 376 of the ITAA 1997, and therefore it is subject to the refundable tax offset rules.
Section 6-1 of the ITAA 1997 provides that assessable income consists of ordinary income and statutory income.
Section 6-5 of the ITAA 1997 states that ordinary income includes income according to ordinary concepts.
Section 6-10 of the ITAA 1997 provides that statutory income relates to amounts which are not ordinary income but which are included in assessable income because of the operation of provisions of the income tax legislation.
Section 11-55 of the ITAA 1997 outlines a list of non-assessable non-exempt income provisions.
In your case if all the conditions under sections 376-35 to 376-50 are met the company is entitled to the PDV offset. As the PDV offset is a refundable offset any excess over the tax payable can be claimed as a refund.
It is considered that a refund received due to a refundable tax offset (in this case the PDV offset), does not have the character of income according to ordinary concepts. Also, refundable tax offsets are not listed under sections 6-10 or 11-55 of the ITAA 1997 and therefore are not statutory income or non-assessable non-exempt income. In summary, the receipt of a tax refund as a result of a refundable tax offset is not subject to income tax.
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