Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)Chapter 4 - Strengthening integrity of the film producer offset
Outline of chapter
4.1 Schedule 3 to this Bill amends the ITAA 1997 to ensure that the producer offset is better targeted at supporting the Australian film industry when an offshore location is used for principal photography.
Context of amendments
4.2 Companies are entitled to a producer offset for qualifying Australian production expenditure incurred for a film with significant Australian content. The intention of the producer offset is to support and develop the Australian screen industry by providing concessional tax treatment for Australian expenditure.
4.3 Screen Australia, as the film authority, determines whether a producer of a film is eligible to claim expenditure as qualifying Australian production expenditure in the context of assessing an application for a certificate for the producer offset.
4.4 Ordinarily, only expenditure that is incurred within Australia will qualify for the offset. However, where the subject matter of the film reasonably requires a foreign location to be used for principal photography, then relevant expenditure incurred in that location may also qualify for the concession, provided that it is:
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- for the remuneration of an Australian resident, or to purchase goods or services from companies or permanent establishments with an ABN; and
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- incurred during the period in which principal photography for the film took place outside Australia.
4.5 Other rules also disqualify expenditure of a company from being qualifying Australian production expenditure if the company is a foreign resident and it does not have a permanent establishment in Australia and an ABN. This further ensures that the Australian screen industry benefits from the offset.
4.6 The exception can be used to allow expenditure on services provided by non-Australian resident cast and crew to be treated as qualifying expenditure where the services have been provided through a company or a permanent establishment that has an ABN. Such expenditure does not directly support the Australian screen industry.
Summary of new law
4.7 The amendment to the producer offset imposes an Australian residency requirement on individuals that perform services outside Australia through a company or permanent establishment if a film reasonably requires a foreign location to be used for principal photography. This ensures that the producer offset is used to support the Australian screen industry as intended.
Comparison of key features of new law and current law
| New law | Current law |
| Where the subject matter of the film reasonably requires principal photography in a location outside Australia, a company may claim towards the producer offset expenditure incurred for the purchase of services performed in that location from a company or permanent establishment that has an ABN, but only if those services are performed by Australian residents. | Where the subject matter of the film reasonably requires principal photography in a location outside Australia, a company may claim towards the producer offset expenditure incurred for the purchase of services performed in that location from a company or permanent establishment that has an ABN. |
Detailed explanation of new law
4.8 Schedule 3 of the Bill amends the ITAA 1997 to limit what is qualifying Australian production expenditure under the producer offset, so that it is better targeted to supporting the Australian screen industry during offshore filming.
4.9 Under the amendment expenditure that is incurred for a service from a company or permanent establishment with an ABN can only be qualifying Australian production expenditure if:
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- the service that is supplied is performed by an individual who is an Australian resident; and
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- the other requirements to be qualifying Australian production expenditure are met.
[Schedule 3, item 1, subsection 376-170(3A) of the ITAA 1997]
4.10 A company may supply a range of services to a company that is producing an Australian film. This may include services provided by non-residents and also separate services provided by residents. If, to any extent, the service provided is not performed by an individual who is an Australian resident, then that service cannot be qualifying Australian production expenditure. [Schedule 3, item 1, subsection 376-170(3A) of the ITAA 1997]
4.11 This ensures that if principal photography needs to be undertaken outside Australia, the tax concession supports the development of the Australian screen industry, including Australian resident cast, crew and other service providers.
Application and transitional provisions
4.12 The amendment applies to expenditure incurred in relation to films that commenced principal photography on or after 1 July 2018. [Schedule 3, item 2]
4.13 The amendment commences on the first day of the first quarterly period following the day the Bill receives Royal Assent. [Clause 2]