You may be eligible for a deduction 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 moneys 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 moneys 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 2 years of the end of the income year in which capital moneys were 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 2-year period-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 moneys 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 an amended notice of 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.
Note
To provide greater certainty for investors, the Australian Taxation Office (ATO) has introduced a Product Rulings system. Promoters of an investment can apply to the ATO 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 provided in Product Ruling PR 1999/95 Income tax and fringe benefits tax: Product Rulings system.