Australian Producer Offset – Quick Reference Guide
What is it?
The Producer Offset is a refundable tax offset which is available for feature films and certain types of television programmes. It is credited against a company’s Australian tax liabilities for the income year in which the production was completed, with the remainder being refunded to the applicant company as a cash lump sum.
The qualification requirements are set out below. The amount of the Producer Offset will depend upon the amount of “Qualifying Australian Production Expenditure” (QAPE) incurred in the making of the production.
How much is it worth?
For feature films, the Producer Offset is a 40% offset of QAPE incurred in the making of the production.
For films that are not feature films (i.e. certain categories of television programmes, see below), the Producer Offset is a 20% offset of QAPE incurred in the making of the production.
When and how do you get the money?
Procedure
Once production is completed and the final certificate has been issued by Screen Australia (see below), the producer lodges an income tax return with the Australian Taxation Office (ATO) attaching the final certificate.
The ATO will calculate the Offset based on the final certificate and the determined QAPE. The amount of the Offset will be credited against the company’s Australian tax liabilities for the income year in which the production was completed and the remainder will be refunded to the applicant company as a cash lump sum.
Timing
The procedure runs in accordance with the end of the financial year which, in Australia, is 30 June. Timing can therefore be a critical issue - if you miss the financial end of year cut-off of 30 June, you would have to wait until the end of the next financial year before you would be able to lodge your income tax return. If you had taken a loan to cash flow production, this would mean that you would be liable for interest on the loan for a significant period of time, particularly when you factor in the time required for the ATO to consider the application after 1 July.
The Australian film industry is currently lobbying the ATO to permit an amended financial year in the case of producers who need to lodge returns early. In theory, it may be possible to seek an alternative year end date for the relevant production entity, but it is by no means certain that the ATO would consent to this. For the time being, it is therefore safest to assume that the year end of the production entity will have to be 30 June.
Cash flow
The Producer Offset presents an obvious opportunity for lenders to cash flow the Offset as most producers would need the money during production rather than being able to wait until some time after production has completed. However, lenders have been cautious about moving into the market due to a number of factors. Screen Australia took over the administration of the Offset from the FFC in July 2008 and their policy on the operation of the Offset is still being developed. Lenders need to be comfortable with the risks involved, for example, the risk of a project failing to meet the minimum QAPE thresholds (see below) or a project only qualifying for the 20% Offset rather than the 40% Offset.
How does a project qualify?
Significant Australian Content
Productions eligible for the Offset must have significant Australian content (unless the production is an official Treaty co-production, in which case this requirement is waived). This is determined by reference to the following:
- the subject matter of the production;
- the place where the production was made;
- the nationalities and places of residence of the persons who took part in the making of the production;
- the details of production expenditure incurred in respect of the production;
- any other matters that Screen Australia considers to be relevant.
Distribution
In the case of a feature film, the production must be produced for Australian public release in a commercial cinema. For all other eligible productions, the production must be produced for distribution or broadcast in some form.
Eligible formats
Feature films and a number of different categories of television programme are eligible.
The following are ineligible: adverts; discussion, quiz, panel or variety programmes; films of a public event; training films; news/current affairs programmes; reality programmes other than documentaries; and computer games.
Eligible applicants
Applicants must be Australian resident companies or foreign resident companies with an Australian Business Number (ABN) operating through a permanent establishment in Australia both when they lodge their income tax return and when the Producer Offset is due to be credited.
Completed production
The production must be completed before applying to Screen Australia for final certification (see below).
Other incentives
Applicants cannot claim the Producer Offset if they have already claimed any other Australian Government film incentives, e.g. the Location Offset and/or the PDV Offset in relation to the production.
Applicants may simultaneously apply for State/Territory incentives.
Qualifying Australian production expenditure (QAPE)
What is QAPE?
QAPE is defined by sections 376-145 of the Income Tax Assessment Act 1997 as the company's expenditure on the production that is incurred for, or is reasonably attributable to:
- goods and services provided in Australia;
- the use of land located in Australia; or
- the use of goods that are located in Australia at the time they are used in the making of the production.
QAPE thresholds
Productions must meet the following thresholds:
TYPE OF PRODUCTION QAPE THRESHOLD Feature film $1,000,000 Non-documentary single episode programme $1,000,000 (minimum QAPE of $800,000 per hour) Documentary single episode programme $250,000 per hour Non-documentary series $1,000,000 (minimum QAPE of $500,000 per hour) Documentary series $250,000 per hour. Short form animation $250,000 (minimum QAPE of $1,000,000 per hour)
Expenditure in other countries
Where the subject matter of a production reasonably requires a foreign location, expenditure in a foreign country on goods and services supplied by Australian residents (including travel costs) may be eligible provided it is incurred during principal photography.
Above The Line costs
A maximum of 20% of the total expenditure on Above the Line costs can be claimed as QAPE. Having a higher percentage of Above The Line costs does not mean that the production is not eligible for the Offset, just that any amount in excess of 20% may not be included in QAPE calculations.
Timing
The Offset is only available in respect of expenditure incurred on or after 1 July 2007.
Excluded expenditure
Certain types of expenditure are excluded from QAPE. Examples of excluded expenditure include: expenditure on development outside Australia; expenditure in acquiring copyright from a non-Australian resident; expenditure incurred in relation to the financing of a film; general business overheads; publicity and promotion expenditure (although many of these categories can be included in QAPE in certain circumstances).
Co-productions
Official treaty co-productions do not have to pass the significant Australian content test, but they do have to meet the QAPE thresholds. However, importantly for Treaty co-productions, expenditure incurred in the co-producer’s country (i.e. outside Australia) can qualify as QAPE if it would have qualified for QAPE had it been incurred by the Australian co-producer (but such expenditure is not included for the purposes of actually calculating the Offset itself).
Application procedure
Provisional certificate
An application for a provisional certificate which provides an indication of eligibility can be made to Screen Australia at any time prior to completion of the production by completing an application form available to download from their website (see below). This is an optional requirement but if Federal/State bodies are also investing in the production, they may require this.
A provisional certificate does not guarantee that the production will be awarded a final certificate.
Final certificate
Once the production is complete and expenditure is no longer being incurred, an application for a final certificate can be made to Screen Australia by completing an application form available to download from their website. Various evidence must accompany the application including evidence of distribution and an auditor’s statement verifying particulars of the production expenditure set out in the application. The process of assessment will take approximately 8 weeks.
Where a production meets the relevant requirements, Screen Australia will issue a final certificate. This must be submitted to the ATO together with the producer’s tax return for the income year in which the production is completed.
Applicable legislation and guidelines
Division 376 of the Income Tax Assessment Act 1997
Producer Offset for Production in Australia Guidelines - July 2008
Producer Offset Rules 2007 (the Rules).
Administering body
Screen Australia
Producer Offset Division
Level 4, 150 William Street
Woolloomooloo NSW 2011
Phone: +61 2 9268 2555
Fax: +61 2 9264 8551
Email: produceroffset@screenaustralia.gov.au
Web: www.screenaustralia.gov.au/producer_offset
This guide is intended as a summary only of statutory provisions which are detailed and complex and should not be relied upon by the reader.
For further information please contact Kate Davies or another member of the Film & TV team.
Issued August 2008.
