Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Film tax offset

This bill amends the ITAA 1997 to create an offset for film production in Australia. This measure is designed to attract large budget film productions to Australia in order to develop Australias film industry.

Broadly the offset for film production in Australia will have the following features:

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films with qualifying Australian production expenditure equal to or greater than $15 million and less than $50 million will have to spend 70% of their total expenditure on production activity in Australia to qualify;

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films with qualifying Australian production expenditure equal to or greater than $50 million will not have to meet the 70% requirement;

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the offset is to be applied at a fixed rate of 12.5% to qualifying Australian production expenditure on a film project;

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films that were not completed by 4 September 2001 will be able to apply for the new offset; and

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a film cannot receive both the new tax offset and the existing Divisions 10B or 10BA (of the ITAA 1936) deductions, or FFC funding. A Film Licensed Investment Company will not be able to invest any of its concessional capital in a film production seeking the offset.

Date of effect: Eligible films must have been completed on or after 4 September 2001. The offset for film production expenditure in Australia is effective from the announcement date and can be claimed from the income year ended 30 June 2002.

Proposal announced: The proposal was contained in the Integrated Film Package announced by the Federal Government on 4 September 2001.

Financial impact: The measures will result in a projected cost to the revenue as set out in the following table:

Compliance cost impact: Minimal. The offset is given to an Australian resident (or Australian permanent establishment) as producer, and verification of qualifying expenditure for the offset is substantially the same as would be required for income tax purposes. The provisions identify the producer in ways consistent with ordinary industry practice. Any additional costs around processes for post-completion certification in relation to qualifying projects should be small.

Summary of regulation impact statement

Regulation impact on business

Impact: The proposed amendments will impact upon companies who seek the production of big budget films, film producers, the Australian film industry and the government agencies who administer the offset for film production in Australia.

Main points:

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An incentive to attract expenditure on large budget film productions to Australia.

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The Australian film industry is expected to benefit from the offset through increased opportunities for Australian casts, crew and post-production and other services to participate in large budget productions.