Tax Laws Amendment (2007 Measures No. 5) Act 2007 (164 of 2007)

Schedule 10   Streamlining concessions for Australian films and Australian film production

Part 1   Main amendments

Income Tax Assessment Act 1997

1   Division 376

Repeal the Division, substitute:

Division 376 - Films generally (tax offsets for Australian production expenditure)

Table of Subdivisions

376-A Guide to Division 376

376-B Tax offsets for Australian expenditure in making a film

376-C Production expenditure and qualifying Australian production expenditure

376-D Certificates for films and other matters

Subdivision 376-A - Guide to Division 376

376-1 What this Division is about

Companies may be entitled to 1 of 3 refundable tax offsets in relation to Australian expenditure incurred in making films. The offsets are designed to support and develop the Australian screen media industry by providing concessional tax treatment for Australian expenditure.

Table of sections

376-2 Key features of the tax offsets for Australian production expenditure on films

376-5 Structure of this Division

376-2 Key features of the tax offsets for Australian production expenditure on films

(1) The 3 tax offsets are:

(a) a refundable tax offset for Australian expenditure in making an Australian film (the producer offset); and

(b) a refundable tax offset for Australian expenditure in making any film (the location offset); and

(c) a refundable tax offset for Australian expenditure on post, digital and visual effects production for any film (the PDV offset).

(2) A company is only entitled to one of these offsets in relation to a film.

(3) The amount of the offset is determined as a percentage of certain Australian expenditure incurred by a company in producing the film:

(a) the amount of the producer offset is 40% of the company's qualifying Australian production expenditure on the film if the film is a feature film, and 20% of such expenditure if the film is not a feature film; and

(b) the amount of the location offset is 15% of the company's qualifying Australian production expenditure on the film; and

(c) the amount of the PDV offset is 15% of the company's qualifying Australian production expenditure on the film that relates to post, digital and visual effects production for the film.

(4) One of the requirements for entitlement to these offsets is that a company must be issued with a certificate for the film. The certificate will state the amount of Australian expenditure on which the offset will be determined.

(5) The offset is claimed by a company in its income tax return.

376-5 Structure of this Division

(1) Subdivision 376-B tells you about the different tax offsets available for films, who can get each offset and what conditions must be met to get each offset. It also tells you how to work out the amount of each offset.

(2) Subdivision 376-C explains what is meant by:

(a) production expenditure on a film; and

(b) qualifying Australian production expenditure on a film.

It also contains some rules for quantifying expenditure.

(3) Subdivision 376-D deals with a number of administrative matters:

(a) applying for a certificate for a film; and

(b) the issue and revocation of a certificate for a film; and

(c) the making of rules by the Arts Minister (including rules for the establishment of the Film Certification Advisory Board) and the film authority; and

(d) review of decisions of the Arts Minister and the film authority; and

(e) amendment of assessments following the revocation of a certificate for a film.

Subdivision 376-B - Tax offsets for Australian expenditure in making a film

Table of sections

Refundable tax offset for Australian expenditure in making a film (location offset)

376-10 Film production company entitled to refundable tax offset for Australian expenditure in making a film (location offset)

376-15 Amount of the location offset

376-20 Minister must issue certificate for a film for the location offset

376-25 Company may nominate one individual whose remuneration is to be disregarded for the location offset

376-30 Minister to determine a company's qualifying Australian production expenditure for the location offset

Refundable tax offset for post, digital and visual effects production for a film (PDV offset)

376-35 Film production company entitled to refundable tax offset for post, digital and visual effects production for a film (PDV offset)

376-40 Amount of the PDV offset

376-45 Minister must issue certificate for a film for the PDV offset

376-50 Minister to determine a company's qualifying Australian production expenditure for the PDV offset

Refundable tax offset for Australian expenditure in making an Australian film (producer offset)

376-55 Film production company entitled to refundable tax offset for Australian expenditure in making an Australian film (producer offset)

376-60 Amount of the producer offset

376-65 Film authority must issue certificate for an Australian film for the producer offset

376-70 Determination of content of film

376-75 Film authority to determine a company's qualifying Australian production expenditure for the producer offset

Refundable tax offset for Australian expenditure in making a film (location offset)

376-10 Film production company entitled to refundable tax offset for Australian expenditure in making a film (location offset)

(1) A company is entitled to a *tax offset under this section (the location offset ) for an income year in respect of a *film if:

(a) if the total of the company's *qualifying Australian production expenditure on the film (as determined by the *Arts Minister under section 376-30) is less than $50 million - the company's *production expenditure on the film ceased being incurred in the income year; and

(b) if the total of the company's qualifying Australian production expenditure on the film (as determined by the *Arts Minister under section 376-30) is at least $50 million - the company's qualifying Australian production expenditure on the film ceased being incurred in the income year; and

(c) the *Arts Minister has issued a certificate to the company for the film under section 376-20 (certificate for the location offset); and

(d) the company claims the offset in its *income tax return for the income year; and

(e) the company:

(i) is an Australian resident; or

(ii) is a foreign resident but does have a *permanent establishment in Australia and does have an *ABN;

when the company lodges the income tax return and when the tax offset is due to be credited to the company.

The claim referred to in paragraph (d) is irrevocable.

Note: The location offset is a refundable tax offset: see subsection 67-25(2A).

(2) The company is not entitled to the location offset if:

(a) the company or someone else claims a deduction in relation to a unit of industrial property that relates to copyright in the *film under Division 10B of Part III of the Income Tax Assessment Act 1936; or

(b) a final certificate for the film has been issued at any time under Division 10BA of Part III of the Income Tax Assessment Act 1936 (whether or not the certificate is still in force); or

(c) a certificate for the film has been issued at any time under section 376-45 (certificate for the PDV offset) (whether or not the certificate is still in force); or

(d) a certificate for the film has been issued at any time under section376-65 (certificate for the producer offset) (whether or not the certificate is still in force).

376-15 Amount of the location offset

The amount of the location offset is 15% of the total of the company's *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376-30).

376-20 Minister must issue certificate for a film for the location offset

(1) The *Arts Minister must issue a certificate to a company for a *film in relation to the location offset if the Minister is satisfied that the conditions in subsections (2), (3) and (5) are met.

Type of film

(2) The conditions in this subsection are that:

(a) the *film was produced for:

(i) exhibition to the public in cinemas or by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or

(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and

(b) the film is:

(i) a *feature film or a film of a like nature; or

(ii) a mini-series of television drama; or

(iii) a television series that is not covered by subparagraph (i) or (ii); and

(c) the film is not, or is not to a substantial extent:

(i) if the film is covered by subparagraph (b)(i) or (ii) - a documentary; or

(ii) a film for exhibition as an advertising program or a commercial; or

(iii) a film for exhibition as a discussion program, a quiz program, a panel program, a variety program or a program of a like nature; or

(iv) a film of a public event; or

(v) if the film is covered by subparagraph (b)(i) or (ii) - a film forming part of a drama program series that is, or is intended to be, of a continuing nature; or

(vi) a training film; or

(vii) a computer game (within the meaning of the Classification (Publications, Films and Computer Games) Act 1995).

Television series

(3) The conditions in this subsection are that:

(a) if the *film is a television series that is not covered by subparagraph (2)(b)(i) or (ii), it is made up of 2 or more episodes that:

(i) are produced wholly or principally for exhibition to the public on television under a single title; and

(ii) contain a common theme or themes; and

(iii) contain dramatic elements that form a narrative structure; and

(iv) are produced wholly or principally for exhibition together, for a national market or national markets; and

Note: A documentary can be a television series.

(b) if the film is a television series that is not covered by subparagraph (2)(b)(i) or (ii):

(i) for a television series that is predominantly a digital animation or other animation - the *making of the television series (other than a pilot episode, if any, or activities mentioned in paragraph 376-125(3)(a)) takes place within a period of not longer than 36 months; or

(ii) otherwise - all principal photography for the television series (other than a pilot episode, if any) takes place within a period of not longer than 12 months; and

(c) if the film is a television series that is not covered by subparagraph (2)(b)(i) or (ii) - the amount worked out for the film under subsection (6) is at least $1 million.

(4) To avoid doubt, and without limiting subparagraph (3)(a)(iii), a *film satisfies the requirement in that subparagraph if:

(a) the sole or dominant purpose of the film is to depict actual events, people or situations; and

(b) the film depicts those events, people or situations in a dramatic or entertaining way, with a heavy emphasis on dramatic impact or entertainment value.

Conditions relating to expenditure thresholds

(5) The conditions in this subsection are that:

(a) the total of the company's *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376-30) is at least $15 million; and

(b) if the total of the company's qualifying Australian production expenditure on the film is less than $50 million:

(i) the total of the company's qualifying Australian production expenditure on the film is at least 70% of the total of all the company's *production expenditure on the film; and

(ii) the company either carried out, or made the *arrangements for the carrying out of, all the activities that were necessary for the *making of the film; and

(c) if the total of the company's qualifying Australian production expenditure on the film is at least $50 million, the company either carried out, or made the arrangements for the carrying out of, all the activities in Australia that were necessary for the making of the film.

Note: The operation of subparagraph (b)(ii) and paragraph (c) is affected by paragraph 376-180(1)(d) (which deals with the situation where one company takes over the making of a film from another company).

(6) For the purposes of paragraph (3)(c), the amount for a *film is worked out by using the formula:

Total QAPE / Duration of film hours

where:

duration of film in hours means the total length of the *film, measured in hours.

total QAPE means the total of the company's *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376-30).

376-25 Company may nominate one individual whose remuneration is to be disregarded for the location offset

(1) In its application for the certificate under section 376-230, the company may nominate one individual as an individual to whom this section applies.

(2) If the company nominates an individual under subsection (1), disregard the following for the purposes of this Division, to the extent that it relates to the location offset:

(a) the remuneration and other benefits provided to the individual for the individual's services in relation to the *making of the *film;

(b) travel and other costs associated with the services the individual provides in relation to the making of the film.

Note: This means that, for the purposes of the location offset, the individual's remuneration and benefits, and associated costs, are disregarded both in working out the total of the company's qualifying Australian production expenditure on the film and in working out the company's total production expenditure on the film.

376-30 Minister to determine a company's qualifying Australian production expenditure for the location offset

(1) If a company applies to the *Arts Minister for the issue of a certificate to the company for a *film under section 376-20 (certificate for the location offset), the Arts Minister must, as soon as practicable after receiving the application, determine in writing the total of the company's *qualifying Australian production expenditure on the film for the purposes of the location offset.

(2) In making a determination under subsection (1), the *Arts Minister must have regard to the matters in Subdivision 376-C.

(3) The *Arts Minister must give the company written notice of the determination.

(4) A determination made under subsection (1) is not a legislative instrument.

Refundable tax offset for post, digital and visual effects production for a film (PDV offset)

376-35 Film production company entitled to refundable tax offset for post, digital and visual effects production for a film (PDV offset)

(1) A company is entitled to a *tax offset under this section (the PDV offset ) for an income year in respect of a *film if:

(a) the company's *qualifying Australian production expenditure on the film, to the extent that it relates to *post, digital and visual effects production for the film, ceased being incurred in the income year; and

(b) the *Arts Minister has issued a certificate to the company for the post, digital and visual effects production for the film under section 376-45 (certificate for the PDV offset); and

(c) the company claims the offset in its *income tax return for the income year; and

(d) the company:

(i) is an Australian resident; or

(ii) is a foreign resident but does have a *permanent establishment in Australia and does have an *ABN;

when the company lodges the income tax return and when the tax offset is due to be credited to the company.

The claim referred to in paragraph (c) is irrevocable.

Note: The PDV offset is a refundable tax offset: see subsection 67-25(2A).

(2) Post, digital and visual effects production for a *film means:

(a) the creation of audio or visual elements (other than principal photography, pick ups or the creation of physical elements such as sets, props or costumes) for the film; and

(b) the manipulation of audio or visual elements (other than pick ups or physical elements such as sets, props or costumes) for the film; and

(c) activities that are necessarily related to the activities mentioned in paragraph (a) or (b).

Note: 3D animation, digital compositing and music composition and recording are examples of post, digital and visual effects production.

(3) The company is not entitled to the PDV offset if:

(a) the company or someone else claims a deduction in relation to a unit of industrial property that relates to copyright in the *film under Division 10B of Part III of the Income Tax Assessment Act 1936; or

(b) a final certificate for the film has been issued at any time under Division 10BA of Part III of the Income Tax Assessment Act 1936 (whether or not the certificate is still in force); or

(c) a certificate for the film has been issued at any time under section 376-20 (certificate for the location offset) (whether or not the certificate is still in force); or

(d) a certificate for the film has been issued at any time under section 376-65 (certificate for the producer offset) (whether or not the certificate is still in force).

376-40 Amount of the PDV offset

The amount of the PDV offset is 15% of the total of the company's *qualifying Australian production expenditure (as determined by the *Arts Minister under section 376-50) on a *film, to the extent that it relates to *post, digital and visual effects production for the film.

376-45 Minister must issue certificate for a film for the PDV offset

(1) The *Arts Minister must issue a certificate to a company for the *post, digital and visual effects production for a *film in relation to the PDV offset if the Minister is satisfied that the conditions in subsections (2), (3) and (5) are met.

Type of film

(2) The conditions in this subsection are that:

(a) the *film was produced for:

(i) exhibition to the public in cinemas or by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or

(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and

(b) the film is:

(i) a *feature film or a film of a like nature; or

(ii) a mini-series of television drama; or

(iii) a television series that is not covered by subparagraph (i) or (ii); and

(c) the film is not, or is not to a substantial extent:

(i) if the film is covered by subparagraph (b)(i) or (ii) - a documentary; or

(ii) a film for exhibition as an advertising program or a commercial; or

(iii) a film for exhibition as a discussion program, a quiz program, a panel program, a variety program or a program of a like nature; or

(iv) a film of a public event; or

(v) if the film is covered by subparagraph (b)(i) or (ii) - a film forming part of a drama program series that is, or is intended to be, of a continuing nature; or

(vi) a training film; or

(vii) a computer game (within the meaning of the Classification (Publications, Films and Computer Games) Act 1995).

Television series

(3) The condition in this subsection is that, if the *film is a television series that is not covered by subparagraph (2)(b)(i) or (ii), it is made up of 2 or more episodes that:

(a) are produced wholly or principally for exhibition to the public on television under a single title; and

(b) contain a common theme or themes; and

(c) contain dramatic elements that form a narrative structure; and

(d) are produced wholly or principally for exhibition together, for a national market or national markets.

Note: A documentary can be a television series.

(4) To avoid doubt, and without limiting paragraph (3)(c), a *film satisfies the requirement in that paragraph if:

(a) the sole or dominant purpose of the film is to depict actual events, people or situations; and

(b) the film depicts those events, people or situations in a dramatic or entertaining way, with a heavy emphasis on dramatic impact or entertainment value.

Conditions relating to expenditure thresholds

(5) The conditions of this subsection are that:

(a) the total of the company's *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376-50), to the extent that it relates to *post, digital and visual effects production for the film, is at least $5 million; and

(b) the company either carried out, or made the arrangements for the carrying out of, all the activities in Australia that were necessary for the post, digital and visual effects production for the film.

Note: The operation of paragraph (b) is affected by paragraph 376-180(1)(d) (which deals with the situation where one company takes over the making of a film from another company).

376-50 Minister to determine a company's qualifying Australian production expenditure for the PDV offset

(1) If a company applies to the *Arts Minister for the issue of a certificate to the company for the *post, digital and visual effects production for a *film under section 376-45 (certificate for the PDV offset), the Arts Minister must, as soon as practicable after receiving the application, determine in writing the total of the company's *qualifying Australian production expenditure, to the extent that it relates to post, digital and visual effects production for the film, for the purposes of the PDV offset.

(2) In making a determination under subsection (1), the *Arts Minister must have regard to the matters in Subdivision 376-C.

(3) The *Arts Minister must give the company written notice of the determination.

(4) A determination made under subsection (1) is not a legislative instrument.

Refundable tax offset for Australian expenditure in making an Australian film (producer offset)

376-55 Film production company entitled to refundable tax offset for Australian expenditure in making an Australian film (producer offset)

(1) A company is entitled to a *tax offset under this section (the producer offset ) for an income year in respect of a *film if:

(a) the film was *completed in the income year; and

(b) the *film authority has issued a certificate to the company under section 376-65 (certificate for the producer offset) for the film; and

(c) the company claims the offset in its *income tax return for the income year; and

(d) the company:

(i) is an Australian resident; or

(ii) is a foreign resident but does have a *permanent establishment in Australia and does have an *ABN;

when the company lodges the income tax return and when the tax offset is due to be credited to the company.

The claim referred to in paragraph (c) is irrevocable.

Note: The producer offset is a refundable tax offset: see subsection 67-25(2A).

(2) A *film is completed :

(a) for a film that is not a series or a season of a series - when it is first in a state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public; or

(b) for a series - at the earlier of:

(i) the time when the 65th episode is first in a state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public; and

(ii) the time when the series is first in such a state; and

(c) for a season of a series - at the earlier of:

(i) the time when the 65th episode of the series is first in a state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public; and

(ii) the time when the season is first in such a state.

(3) Film authority means the Film Finance Corporation Australia Limited (incorporated under the Companies Act 1981 on 12 July 1988).

(4) The company is not entitled to the producer offset if:

(a) the company or someone else claims a deduction in relation to a unit of industrial property that relates to copyright in the *film under Division 10B of Part III of the Income Tax Assessment Act 1936; or

(b) a final certificate for the film has been issued at any time under Division 10BA of Part III of the Income Tax Assessment Act 1936 (whether or not the certificate is still in force); or

(c) a certificate for the film has been issued at any time under section 376-20 (certificate for the location offset) (whether or not the certificate is still in force); or

(d) a certificate for the film has been issued at any time under section 376-45 (certificate for the PDV offset) (whether or not the certificate is still in force); or

(e) the company or someone else has deducted money paid for *shares in a *film licensed investment company under Subdivision 375-H and the film licensed investment company has invested in the film; or

(f) production assistance (other than *development assistance) for the film has been received by the company or anyone else before 1 July 2007 from any of the following bodies:

(i) the Film Finance Corporation Australia Limited;

(ii) Film Australia Limited;

(iii) the Australian Film Commission;

(iv) the Australian Film, Television and Radio School.

(5) Development assistance for a *film means financial assistance provided to assist with meeting the development costs for the film, and includes assistance to the extent to which it is provided in relation to any of the following:

(a) location surveys and other activities undertaken to assess locations for possible use in the film;

(b) storyboarding for the film;

(c) scriptwriting for the film;

(d) research for the film;

(e) casting actors for the film;

(f) developing a budget for the film;

(g) developing a shooting schedule for the film.

376-60 Amount of the producer offset

The amount of the producer offset is:

(a) if the *film is a *feature film - 40%; or

(b) if the film is not a feature film - 20%;

of the total of the company's *qualifying Australian production expenditure on the film (as determined by the *film authority under section 376-75).

376-65 Film authority must issue certificate for an Australian film for the producer offset

(1) The *film authority must issue a certificate to a company for a *film in relation to the producer offset if the film authority is satisfied that:

(a) the company either carried out, or made the arrangements for the carrying out of, all the activities that were necessary for the *making of the film; and

(b) the conditions in subsections (2) to (6) are met.

Note: The operation of paragraph (a) is affected by paragraph 376-180(1)(d) (which deals with the situation where one company takes over the making of a film from another company).

Type of film

(2) The conditions in this subsection are that:

(a) the *film:

(i) has a significant Australian content (see section 376-70); or

(ii) has been made under an *arrangement entered into between the Commonwealth or an authority of the Commonwealth and a foreign country or an authority of the foreign country; and

(b) the film was produced for:

(i) exhibition to the public in cinemas or by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or

(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and

(c) the film is:

(i) a *feature film; or

(ii) a single episode program; or

(iii) a series; or

(iv) a season of a series; or

(v) a short form animated drama that is not covered by subparagraph (i), (ii), (iii) or (iv); and

(d) the film is not, or is not to a substantial extent:

(i) a film for exhibition as an advertising program or a commercial; or

(ii) a film for exhibition as a discussion program, a quiz program, a panel program, a variety program or a program of a like nature; or

(iii) a film of a public event (other than a documentary); or

(iv) a training film; or

(v) a computer game (within the meaning of the Classification (Publications, Films and Computer Games) Act 1995); or

(vi) a news or current affairs program; or

(vii) a reality program (other than a documentary).

Single episode programs

(3) The conditions in this subsection are that, if the *film is a single episode program, it:

(a) is of a like nature to a *feature film; and

(b) is produced for:

(i) exhibition to the public by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or

(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and

(c) if the program is a documentary - is of at least one half of a commercial hour in duration; and

(d) if the program is not a documentary - is of at least one commercial hour in duration.

Short form animated drama

(4) The conditions in this subsection are that, if the *film is a short form animated drama, it:

(a) is a drama program comprising one or more episodes which are produced wholly or principally for exhibition together, for a national market or national markets under a single title; and

(b) is predominantly made using cell, stop motion, digital or other animation; and

(c) contains a common theme or themes; and

(d) is of at least one quarter of a commercial hour in duration.

Series and seasons of series

(5) The conditions in this subsection are that:

(a) if the application for the certificate is for a *film that is a series and not for a film that is a season of that series:

(i) the series is made up of at least 2 episodes; and

(ii) each episode of the series is at least one half of a commercial hour in duration, except where the film is predominantly made using cell, stop motion, digital or other animation, in which case each episode is at least one quarter of a commercial hour in duration; and

(iii) the series has a new creative concept (see section 376-70); and

(b) if the application for the certificate is for a film that is a season of a series:

(i) the season is made up of at least 2 episodes; and

(ii) each episode of the series is at least one half of a commercial hour in duration, except where the film is predominantly made using cell, stop motion, digital or other animation, in which case each episode is at least one quarter of a commercial hour in duration; and

(iii) the series has a new creative concept (see section 376-70).

Expenditure thresholds

(6) The conditions in this subsection are as set out in the table.

(7) The amount worked out for a *film under this subsection is the amount worked out using the formula:

Total QAPE / Duration of film in hours

where:

duration of film in hours means the total length of the *film, measured in hours.

total QAPE means the total of the company's *qualifying Australian production expenditure on the *film (as determined by the *film authority under section 376-75).

376-70 Determination of content of film

(1) In determining for the purposes of section 376-65 (certificate for the producer offset) whether a *film has a significant Australian content, the *film authority must have regard to the following:

(a) the subject matter of the film;

(b) the place where the film was made;

(c) the nationalities and places of residence of the persons who took part in the *making of the film;

(d) the details of the *production expenditure incurred in respect of the film;

(e) any other matters that the film authority considers to be relevant.

(2) In determining for the purposes of section 376-65 (certificate for the producer offset) whether a *film that is a series has a new creative concept, the *film authority must have regard to the following:

(a) the title of the series;

(b) whether the series has substantially different characters, settings, production locations and individuals involved in the *making of the series than any other series;

(c) any other matters that the film authority considers to be relevant.

376-75 Film authority to determine a company's qualifying Australian production expenditure for the producer offset

(1) If a company applies to the *film authority for the issue of a certificate to the company for a *film under section 376-65 (certificate for the producer offset), the film authority must, as soon as practicable after receiving the application, determine in writing the total of the company's *qualifying Australian production expenditure on the film for the purposes of the producer offset.

(2) In making a determination under subsection (1), the *film authority must have regard to the matters in Subdivision 376-C.

(3) The *film authority must give the company written notice of the determination.

(4) A determination made under subsection (1) is not a legislative instrument.

Subdivision 376-C - Production expenditure and qualifying Australian production expenditure

Table of sections

Production expenditure - common rules

376-125 Production expenditure - general test

376-130 Production expenditure - special qualifying Australian production expenditure

376-135 Production expenditure - specific exclusions

Production expenditure - special rules for the location offset

376-140 Production expenditure - special rules for the location offset

Qualifying Australian production expenditure - common rules

376-145 Qualifying Australian production expenditure - general test

376-150 Qualifying Australian production expenditure - specific inclusions

376-155 Qualifying Australian production expenditure - specific exclusions

376-160 Qualifying Australian production expenditure - treatment of services embodied in goods

Qualifying Australian production expenditure - special rules for the location offset and the PDV offset

376-165 Qualifying Australian production expenditure - special rules for the location offset and the PDV offset

Qualifying Australian production expenditure - special rules for the producer offset

376-170 Qualifying Australian production expenditure - special rules for the producer offset

Expenditure generally - common rules

376-175 Expenditure to be worked out on an arm's length basis

376-180 Expenditure incurred by prior production companies

Production expenditure - common rules

376-125 Production expenditure - general test

(1) A company's production expenditure on a *film is expenditure that the company incurs to the extent to which it:

(a) is incurred in, or in relation to, the *making of the film; or

(b) is reasonably attributable to:

(i) the use of equipment or other facilities for; or

(ii) activities undertaken in;

the making of the film.

(2) The making of a *film means the doing of the things necessary for the production of the first copy of the film.

(3) The making of a *film includes:

(a) pre-production activities in relation to the film; and

(b) post-production activities in relation to the film; and

(c) any other activities undertaken to bring the film up to the state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public.

(4) The making of a *film does not include:

(a) developing the proposal for the *making of the film; or

(b) arranging or obtaining finance for the film; or

(c) distributing the film; or

(d) promoting the film.

(5) Without limiting subsection (1), a company's production expenditure on a *film:

(a) may be expenditure that is incurred in the income year for which the *tax offset is sought or in an earlier income year; and

(b) may be expenditure of either a capital or a revenue nature; and

(c) may be expenditure that gives rise to a deduction.

Paragraph (c) has effect subject to item 10 of the table in section 376-135 (which deals with capital allowances).

(6) If:

(a) a company:

(i) *holds a *depreciating asset; and

(ii) uses the asset, while held, in the *making of a *film; and

(b) deductions in relation to the asset are available under Division 40 (which deals with capital allowances);

the production expenditure of the company on the film includes an amount equal to the decline in the value of the asset to the extent to which that decline is reasonably attributable to the use of the asset in the making of the film (the film proportion ). The decline in value of the asset is to be worked out using Division 40.

Note: Under item 10 of the table in section 376-135, expenditure that sets or increases the cost of the asset does not count as production expenditure.

(7) If a *balancing adjustment event occurs for the asset before the film is *completed:

(a) if the asset's *termination value is more than its *adjustable value just before the event occurred - the production expenditure of the company on the film is reduced by the film proportion of the difference; or

(b) if the asset's termination value is less than its adjustable value just before the event occurred - the production expenditure of the company on the film includes the film proportion of the difference.

376-130 Production expenditure - special qualifying Australian production expenditure

Expenditure of a company is also production expenditure of the company on a *film if it is *qualifying Australian production expenditure of the company on the film under section 376-150 or 376-165.

Note: This means that the special qualifying Australian production expenditure in sections 376-150 and 376-165 is taken into account both in working out the total amount of the company's qualifying Australian production expenditure and in working out the total amount of all the company's production expenditure on the film. The total amount of all production expenditure is relevant to a company's eligibility for the location offset: see the test in paragraph 376-20(5)(b).

376-135 Production expenditure - specific exclusions

Despite sections 376-125 and 376-130, the following expenditure of a company is not production expenditure of the company on a *film, except to the extent, if any, as mentioned in column 3 of the table:

Production expenditure - special rules for the location offset

376-140 Production expenditure - special rules for the location offset

Despite sections 376-125 and 376-130, the expenditure of a company is not production expenditure of the company on a *film in relation to the location offset if:

(a) the film is a television series that is not a *feature film or a mini-series of television drama; and

(b) the expenditure is reasonably attributable to the production of a pilot episode to the television series; and

(c) the expenditure, apart from this subsection, would be production expenditure that was not *qualifying Australian production expenditure.

Note: The total amount of all production expenditure is relevant to the test in paragraph 376-20(5)(b).

Qualifying Australian production expenditure - common rules

376-145 Qualifying Australian production expenditure - general test

A company's qualifying Australian production expenditure on a *film is the company's *production expenditure on the film to the extent to which it is incurred for, or is reasonably attributable to:

(a) goods and services provided in Australia; or

(b) the use of land located in Australia; or

(c) the use of goods that are located in Australia at the time they are used in the *making of the film.

376-150 Qualifying Australian production expenditure - specific inclusions

(1) The following expenditure of a company is also qualifying Australian production expenditure of the company on a *film:

(2) Legal costs are covered by item 1 of the table in subsection (1) only if they relate to:

(a) writers' contracts; or

(b) chain of title and other copyright issues.

376-155 Qualifying Australian production expenditure - specific exclusions

Despite sections 376-145, 376-150, 376-165 and 376-170, the following expenditure of a company is not qualifying Australian production expenditure of a company on a *film:

(a) expenditure that is incurred when:

(i) the company is a foreign resident; and

(ii) the company does not have both a *permanent establishment in Australia and an *ABN;

(b) expenditure in relation to:

(i) remuneration and other benefits provided to an individual for the individual's services in relation to the *making of the film; or

(ii) travel and other costs associated with the services an individual provides in relation to the making of the film;

if the individual:

(iii) is not a member of the cast; and

(iv) enters Australia to work on the film for less than 2 consecutive calendar weeks;

(c) expenditure prescribed by the regulations.

376-160 Qualifying Australian production expenditure - treatment of services embodied in goods

If:

(a) a company incurs expenditure for the provision of what is essentially a service; and

(b) the results of the service are provided to the company by being embodied in goods that are delivered to the company; and

(c) the service that is embodied in the goods was predominantly performed outside Australia;

the service is not provided to the company in Australia merely because the goods are delivered to the company in Australia.

Note: Paragraph (b) - a document, for example, might set out legal or other professional advice or a computer disk might contain a program that has been made or data that has been compiled.

Qualifying Australian production expenditure - special rules for the location offset and the PDV offset

376-165 Qualifying Australian production expenditure - special rules for the location offset and the PDV offset

(1) For the purposes of the location offset and the PDV offset, the following expenditure of a company is also qualifying Australian production expenditure of the company on a *film:

(2) General business overheads of the company are covered by item 1 of the table in subsection (1) only to the extent to which they do not exceed the lesser of:

(a) 2% of the total of all the company's *production expenditure on the *film; and

(b) $500,000.

Qualifying Australian production expenditure - special rules for the producer offset

376-170 Qualifying Australian production expenditure - special rules for the producer offset

Expenditure that is qualifying Australian production expenditure

(1) For the purposes of subsections 376-65(6) and (7), expenditure on a *film incurred in a foreign country is qualifying Australian production expenditure of a company on the film if:

(a) the expenditure is incurred by the company claiming the offset, or by another entity that is involved in the *making of the film; and

(b) the expenditure would be qualifying Australian production expenditure if it had been incurred for, or reasonably attributable to:

(i) goods and services provided in Australia; or

(ii) the use of land located in Australia; or

(iii) the use of goods that are located in Australia at the time they are used in the *making of the film; and

(c) the film is made under an *arrangement entered into between the Commonwealth or an authority of the Commonwealth and the foreign country or an authority of the foreign country.

Note: This means that such expenditure is taken into account for the purposes of determining whether to issue a certificate for the producer offset to the company under section 376-65. It is not taken into account in working out the amount of the producer offset to which the company is entitled.

(2) For the purposes of the producer offset, the following expenditure of a company is also qualifying Australian production expenditure of the company on a *film:

(3) General business overheads of the company are covered by item 1 of the table in subsection (2) only to the extent to which they do not exceed the lesser of:

(a) 5% of the total of all the company's *total film expenditure on the *film; and

(b) $500,000.

Expenditure that is not qualifying Australian production expenditure

(4) For the purposes of the producer offset, the following expenditure of a company is not qualifying Australian production expenditure of a company on a *film:

(a) expenditure on the film that is paid for with *development assistance received from any of the following bodies:

(i) the Film Finance Corporation Australia Limited;

(ii) Film Australia Limited;

(iii) the Australian Film Commission;

(iv) the Australian Film, Television and Radio School;

unless the amount or value of the assistance has been repaid;

(b) the following expenditure:

(i) *development expenditure on the film;

(ii) remuneration provided to the principal director, producers and principal cast associated with the film;

to the extent that such expenditure comprises greater than 20% of the company's *total film expenditure on the film;

(c) for a series or a season of a series - expenditure on an episode beyond the 65th episode of the series.

(5) In applying paragraph (4)(c), episodes completed before 1 July 2007 count towards the limit in that paragraph.

(6) Total film expenditure on a film means:

(a) expenditure covered by sections 376-125, 376-130, 376-150 and 376-170; and

(b) expenditure mentioned in column 2 of the table in section 376-135, to the extent that it is not covered by paragraph (a).

Expenditure generally - common rules

376-175 Expenditure to be worked out on an arm's length basis

For the purposes of this Division, if any 2 or more parties to:

(a) an *arrangement under which a company incurs expenditure in relation to a *film; or

(b) any act or transaction directly or indirectly connected with expenditure that a company incurs in relation to a film;

do not deal with each other at *arm's length in relation to the arrangement, or in relation to the act or transaction, the expenditure is taken to be only so much (if any) of the expenditure as would have been incurred if they had been dealing with each other at arm's length in relation to the arrangement, or in relation to the act or transaction.

376-180 Expenditure incurred by prior production companies

(1) For the purposes of this Division, if a company (the incoming company ) takes over the *making of a *film from another company (the outgoing company ):

(a) expenditure incurred in relation to the film by the outgoing company is taken to have been incurred in relation to the film by the incoming company; and

(b) for the purposes of determining the extent to which that expenditure is *qualifying Australian production expenditure of the incoming company, the incoming company is taken:

(i) to have been an Australian resident at any time when the outgoing company was an Australian resident; and

(ii) to have had a *permanent establishment in Australia at any time when the outgoing company had a permanent establishment in Australia; and

(iii) to have had an *ABN at any time when the outgoing company had an ABN; and

(c) expenditure that the incoming company incurs in order to be able to take over the making of the film is to be disregarded for the purposes of this Division; and

(d) any activities carried out, and arrangements made, by the outgoing company in relation to the film are taken, for the purposes of subparagraph 376-20(5)(b)(ii) and paragraphs 376-20(5)(c), 376-45(5)(b) and 376-65(1)(a), to have been carried out or made by the incoming company in relation to the film.

(2) For the purposes of subsection (1):

(a) expenditure incurred on the *film by the outgoing company includes expenditure that the outgoing company is itself taken to have incurred on the film because of the operation of subsection (1); and

(b) the outgoing company is taken:

(i) to have been an Australian resident at any time when the outgoing company is taken to have been an Australian resident because of the operation of subsection (1); and

(ii) to have had a *permanent establishment in Australia at any time when the outgoing company is taken to have had a permanent establishment in Australia because of the operation of subsection (1); and

(iii) to have had an *ABN at any time when the outgoing company is taken to have had an ABN because of the operation of subsection (1); and

(c) activities carried out by the outgoing company in relation to the film include activities that the outgoing company is taken to have carried out in relation to the film because of the operation of subsection (1); and

(d) arrangements made by the outgoing company for the carrying out of activities in relation to the film include arrangements that the outgoing company is taken to have made because of the operation of subsection (1).

Example: If Uncle Carty Ltd starts out making a film and then Mr Grouble Ltd takes over the making of the film, Mr Grouble Ltd is taken to have incurred the expenditure that Uncle Carty Ltd incurred on the film. If Lousie Ltd subsequently takes over the making of the film from Mr Grouble Ltd, Lousie Ltd is taken to have incurred the expenditure that Mr Grouble Ltd incurred on the film (including the expenditure of Uncle Carty Ltd that is attributed to Mr Grouble Ltd).

Subdivision 376-D - Certificates for films and other matters

Table of sections

376-230 Production company may apply for certificate

376-235 Notice of refusal to issue certificate

376-240 Issue of certificate

376-245 Revocation of certificate

376-250 Notice of decision or determination

376-255 Review of decisions by the Administrative Appeals Tribunal

376-260 Minister may make rules about the location offset and the PDV offset

376-265 Film authority may make rules about the producer offset

376-270 Amendment of assessments

376-230 Production company may apply for certificate

Application for location offset certificate

(1) A company may apply to the *Arts Minister for the issue of a certificate to the company for a *film under section 376-20 (certificate for the location offset):

(a) if the total of the company's *qualifying Australian production expenditure on the film (as determined by the *Arts Minister under section 376-30) is less than $50 million - when all of the company's *production expenditure has been incurred; and

(b) if the total of the company's qualifying Australian production expenditure on the film (as determined by the *Arts Minister under section 376-30) is at least $50 million - when all of the company's qualifying Australian production expenditure has been incurred.

Application for PDV offset certificate

(2) Once all of a company's *qualifying Australian production expenditure on a *film, to the extent that it relates to *post, digital and visual effects production for the film, has been incurred, the company may apply to the *Arts Minister for the issue of a certificate to the company for the film under section 376-45 (certificate for the PDV offset).

Application for producer offset certificate

(3) Once a *film is *completed, a company may apply to the *film authority for the issue of a certificate to the company for the film under section 376-65 (certificate for the producer offset).

Form of application

(4) An application under subsection (1) or (2) must be made in accordance with the rules determined by the *Arts Minister under section 376-260 so far as they relate to the requirements for applications.

(5) An application under subsection (3) must be made in accordance with the rules determined by the *film authority under section 376-265 so far as they relate to the requirements for applications.

376-235 Notice of refusal to issue certificate

(1) If the *Arts Minister decides not to issue a certificate under section 376-20 (certificate for the location offset) or 376-45 (certificate for the PDV offset) for a *film, the Minister must give the applicant written notice of the decision (including reasons for the decision).

(2) If the *film authority decides not to issue a certificate under section 376-65 (certificate for the producer offset) for a *film, the authority must give the applicant written notice of the decision (including reasons for the decision).

376-240 Issue of certificate

(1) A certificate issued to a company under section 376-20 (certificate for the location offset), 376-45 (certificate for the PDV offset) or 376-65 (certificate for the producer offset) must:

(a) be in writing; and

(b) specify the company's *ABN; and

(c) specify the date of issue of the certificate; and

(d) if the certificate is issued under section 376-20 - specify the total of the company's *qualifying Australian production expenditure on the *film, as determined by the *Arts Minister under section 376-30; and

(e) if the certificate is issued under section 376-45 - specify the total of the company's qualifying Australian production expenditure on the film, to the extent that it relates to *post, digital and visual effects production for the film, as determined by the Arts Minister under section 376-50; and

(f) if the certificate is issued under section 376-65 - specify the total of the company's qualifying Australian production expenditure on the film, as determined by the *film authority under section 376-75.

(2) If the certificate is issued under section 376-20 (certificate for the location offset) or 376-45 (certificate for the PDV offset), the *Arts Minister must give the Commissioner notice of the issue of a certificate for a *film within 30 days after issuing the certificate.

(3) The notice under subsection (2) must specify:

(a) the company's name; and

(b) the company's address; and

(c) the total of the company's *qualifying Australian production expenditure on the *film, as determined by the *Arts Minister under section 376-30 or 376-50, as the case may be; and

(d) other matters agreed to between the *Arts Minister and the Commissioner.

The notice must be accompanied by a copy of the certificate.

(4) If the certificate is issued under section 376-65 (certificate for the producer offset), the *film authority must give the Commissioner notice of the issue of a certificate for a *film within 30 days after issuing the certificate.

(5) The notice under subsection (4) must specify:

(a) the company's name; and

(b) the company's address; and

(c) the total of the company's *qualifying Australian production expenditure on the *film, as determined by the *film authority under section 376-75; and

(d) other matters agreed to between the film authority and the Commissioner.

The notice must be accompanied by a copy of the certificate.

376-245 Revocation of certificate

(1) The *Arts Minister may revoke a certificate issued to a company for a *film under section 376-20 (certificate for the location offset) or 376-45 (certificate for the PDV offset) if:

(a) the Minister is satisfied that the issue of the certificate was obtained by fraud or serious misrepresentation; or

(b) the company does not provide a copy of the film to the Minister within 30 days of when the film is *completed.

(2) If the *Arts Minister revokes a certificate under subsection (1), the Minister must give the company to whom the certificate was issued written notice of the revocation (including reasons for the decision to revoke the certificate).

(3) The *film authority may revoke a certificate issued to a company for a *film under section 376-65 (certificate for the producer offset) if the authority is satisfied that the issue of the certificate was obtained by fraud or serious misrepresentation.

(4) If the *film authority revokes a certificate under subsection (3), the authority must give the company to whom the certificate was issued written notice of the revocation (including reasons for the decision to revoke the certificate).

(5) If a certificate is revoked under subsection (1) or (3), it is taken, for the purposes of this Division, never to have been issued.

Note: This means that if an assessment of a company's income tax is issued on the basis that the company is entitled to a tax offset for a film and the certificate for the film is then revoked, the assessment will be amended to take account of the fact that the company was never entitled to the tax offset: see section 376-270.

(6) Subsection (5) does not apply for the purposes of:

(a) the operation of this section or section 376-250; or

(b) a review by a court or the *AAT of the decision to revoke the certificate.

376-250 Notice of decision or determination

(1) This section applies to a notice of a decision given under section 376-235 (refusal to issue a certificate) or 376-245 (revocation of a certificate), and to a notice of a determination given under section 376-30 (determination of qualifying Australian production expenditure for location offset), 376-50 (determination of qualifying Australian production expenditure for PDV offset) or 376-75 (determination of qualifying Australian production expenditure for producer offset).

(2) The notice of the decision or determination is to include the statements set out in subsections (3) and (4).

(3) There must be a statement to the effect that, subject to the Administrative Appeals Tribunal Act 1975, an application may be made to the *AAT, by (or on behalf of) any entity whose interests are affected by the decision or determination, for review of the decision or determination.

(4) There must also be a statement to the effect that a request may be made under section 28 of the Administrative Appeals Tribunal Act 1975 by (or on behalf of) such an entity for a statement:

(a) setting out the findings on material questions of fact; and

(b) referring to the evidence or other material on which those findings were based; and

(c) giving the reasons for the decision or determination;

except where subsection 28(4) of that Act applies.

(5) If the *Arts Minister or the *film authority fails to comply with subsection (3) or (4), that failure does not affect the validity of the decision or determination.

376-255 Review of decisions by the Administrative Appeals Tribunal

Applications may be made to the *AAT for review of:

(a) a decision made by the *Arts Minister to refuse an application for a certificate under section 376-20 (certificate for the location offset) or 376-45 (certificate for the PDV offset); or

(b) a decision made by the Arts Minister under section 376-245 to revoke a certificate; or

(c) a decision made by the *film authority to refuse an application for a certificate under section 376-65 (certificate for the producer offset); or

(d) a decision made by the film authority under section 376-245 to revoke a certificate; or

(e) a determination by the Arts Minister in relation to the total of a company's *qualifying Australian production expenditure under section 376-30 or 376-50; or

(f) a determination by the film authority in relation to the total of a company's *qualifying Australian production expenditure under section 376-75.

376-260 Minister may make rules about the location offset and the PDV offset

Rules establishing the Film Certification Advisory Board

(1) The *Arts Minister may, by legislative instrument, make rules:

(a) establishing a Film Certification Advisory Board to:

(i) consider applications under subsection 376-230(1) (application for a certificate for the location offset) or (2) (application for a certificate for the PDV offset) and advise the Minister on whether to issue certificates under section 376-20 (certificate for the location offset) or 376-45 (certificate for the PDV offset); and

(ii) perform such other functions in relation to the operation of this Division as are specified in the rules; and

(b) specifying the membership of the Board and the terms and conditions of appointment to the Board; and

(c) specifying procedures to be followed by the Board in performing its functions.

Rules providing for provisional certificates in relation to location offset and the PDV offset

(2) The *Arts Minister may, by legislative instrument, make rules providing for the issue of provisional certificates in relation to the location offset or the PDV offset.

Rules about applications for certificates in relation to the location offset and the PDV offset

(3) The *Arts Minister may, by legislative instrument, make rules specifying how applications for certificates (including provisional certificates) in relation to the location offset or the PDV offset are to be made, including:

(a) the form in which applications are to be made; and

(b) the information to be provided in applications; and

(c) methods for verifying such information; and

(d) procedures for providing, at the Minister's request, additional information in support of an application.

(4) Rules under paragraph (3)(c) can include rules requiring reports by auditors or independent line producers.

376-265 Film authority may make rules about the producer offset

Rules providing for provisional certificates in relation to the producer offset

(1) The *film authority may, by legislative instrument, make rules providing for the issue of provisional certificates in relation to the producer offset.

Rules about applications for certificates in relation to the producer offset

(2) The *film authority may, by legislative instrument, make rules specifying how applications for certificates (including provisional certificates) in relation to the producer offset are to be made, including:

(a) the form in which applications are to be made; and

(b) the information to be provided in applications; and

(c) methods for verifying such information; and

(d) procedures for providing, at the authority's request, additional information in support of an application.

(3) Rules under paragraph (2)(c) can include rules requiring reports by auditors or independent line producers.

376-270 Amendment of assessments

Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purposes of giving effect to this Division for an income year if:

(a) a certificate issued to a company for a *film is revoked under section 376-245 after the time the company lodged its *income tax return for an income year; and

(b) the amendment is made at any time during the period of 4 years starting immediately after the revocation of the certificate.

Note: Section 170 of that Act specifies the periods within which assessments may be amended.

376-275 Review in relation to certain production levels

The Minister must, before the end of 12 months after the commencement of this Division, initiate a review of the effect of this Division in relation to levels of production by the Australian independent production sector compared to levels of production by Australian television broadcasters.