EXPLANATORY STATEMENT
Issued by the Minister for the Arts and Sport
Film Licensed Investment Company Act 2005
Film Licensed Investment Company (Reporting Requirements) Determination 2005
Purpose of the Reporting Requirements
Legislative authority
Subsection 35(1) of the Film Licensed Investment Company Act 2005 (the Act) allows the Minister to determine reporting requirements with which the company that is issued with the licence to raise concessional capital must comply. The purpose of the reporting requirements is to:
(a) monitor the licensee’s compliance with the Act; and
(b) evaluate the operation of the Scheme provided for in Part 2 of the Act.
The reports will be a valuable source of information for the Minister about the Scheme’s effectiveness, including whether it is meeting its objective of attracting greater private sector investment in Australian film and television productions.
The ability of companies applying for the licence to comply with the Act’s reporting requirements will also be considered during the application process, as required under the Film Licensed Investment Company Scheme (Decision-making Criteria and Procedures) Determination 2005. This Determination is made under section 9 of the Act and articulates the criteria to be applied and procedures to be complied with by the Minister in deciding whether, and to whom, to grant the licence under the Scheme.
Background to the FLIC Scheme
The FLIC Scheme was announced as part of the Government’s 2004 election policy and was confirmed in the 2005-06 Budget. The FLIC Scheme seeks to encourage greater private investment in the Australian film and television industry by providing a tax concession for the initial purchasers of shares in the Australian company which is granted the FLIC licence.
The Act provides for a single licensee to raise concessional capital (that is, capital that will attract a tax concession), in the financial years 2005-06 and 2006-07. The amount of concessional capital that can be raised in each financial year is capped at $10 million. Even if less than $10 million is raised in 2005-06, the amount that can be raised in
2006-2007 remains at $10 million because the Scheme has been costed on a per annum basis. Funds raised by the licensee must be invested in qualifying Australian films as defined under Division 10BA of Part III of the Income Tax Assessment Act 1936.
Persons who invest in the FLIC during the capital raising period will be entitled to a 100% upfront tax deduction for the cost of the shares purchased. The concessional capital raising period will end on 30 June 2007. After that date the FLIC is permitted to continue to raise capital but capital raised after 30 June 2007 will not attract a tax concession. (Funds which do not attract a tax concession are referred to as non-concessional capital). All capital raised by the FLIC, whether concessional or non-concessional, must be invested by 30 June 2008. The Scheme operates until 30 June 2009. A review of the FLIC Scheme’s operation was foreshadowed when it was costed in the 2005-06 Budget context.
The FLIC licence is granted by the Minister following a competitive selection process. An expert Selection Advisory Panel appointed by the Minister will assess applications against the criteria determined by the Minister under section 9 of the Act and make a recommendation to the Minister on which company should be granted the licence.
Consultation
Consultation was undertaken with key industry stakeholders before finalising the Reporting Requirements. Targeted consultations were undertaken in order to obtain timely comment thus avoiding a delay in calling for applications for the FLIC licence. Such a delay would have impacted on the time available for the successful licensee to seek shareholders within the limited capital raising period (refer to Background on the FLIC Scheme above).
Stakeholders raised no concerns in relation to the Reporting Requirements.
Regulation Impact Statement
The Office of Regulation Review has advised that a Regulation Impact Statement is not required.
Operation of the Reporting Requirements
Notes on Clauses
Clause 1 Name of Determination
Clause 1 states that the name of the Determination is the Film Licensed Investment Company (Reporting Requirements) Determination 2005.
Clause 2 Commencement
Clause 2 provides that the Determination commences on the day following the date it is registered. This is the default timing for commencement under the Legislative Instruments Act 2003.
Clause 3 Object of Determination
Clause 3 states that the object of the Determination is to give effect to certain provisions under the Act for the purposes of monitoring compliance with the Act and for evaluating the Scheme as set out under Part 2 of the Act.
Clause 4 Definitions
This clause defines the terms used in the Determination.
“Act” refers to the Film Licensed Investment Company Act 2005.
“financial year” refers to the period from the date the Minister issues the licence to raise concessional capital under the Act to 30 June 2006. This acknowledges that the licence will not be issued until after 1 July 2005 and that the licence will not be in effect for the whole 2005-06 financial year. The licence will, however, be in effect in subsequent years over the usual 1 July to 30 June time period.
“qualifying Australian film” has the same meaning as defined in Division 10BA of the Income Tax Assessment Act 1936, that is an eligible film (in relation to its format) and an Australian film.
Clause 5 Reports - general
Subclause 5(1) provides a table which details the deadlines for delivery of reports to the Minister and the time period each report must cover. The information is presented in tabular form for the purposes of clarity.
Over the period from the date of issue of the licence to the Scheme’s end (30 June 2009) there are seven reports required to be delivered, four of which are annual reports and three interim, or six monthly, reports. Except during the Scheme’s initial period of operation, this will effectively provide the Minister with a report every six months about the licensee’s operations. More frequent reporting would impose an unnecessary administrative burden on the FLIC.
The first report, while described as an annual report, is likely to cover a period of less than one year but more than six months, as the licence is likely to be issued during the later half of 2005. It was considered unnecessary to require the FLIC to report earlier, for the period up to 31 December, for example, as preparation of the report would distract the FLIC during the initial and critical capital raising stage. Further, it is unlikely that the FLIC will be in a position to provide detailed information on its operations in the first six months, apart from progress on capital raising, as many of its projects will not have yet entered into production.
Annual reports are due within two calendar months of the end of the reporting period and interim reports are due six weeks after the end of the reporting period. More time is allowed for annual reports as these are more comprehensive, especially in relation to the level of financial reporting required. The provision of annual reports at the end of each financial year is also an important part of ensuring that the Scheme is both accountable and transparent and meets the object set out under section 4(e) of the Act of ensur[ing] that the level of the Commonwealth’s assistance to the Australian film industry is quantifiable, accountable and transparent.
The exception is the first annual report, which falls due on 30 June 2006. (Item 109 of Schedule 1 makes special provision for information or documents relevant to the period ending on 30 June 2006 which are not available at that date). This is because no interim report is required in the first year of the FLIC’s operation, for the reasons set out above. Nonetheless, the Minister will need to obtain a clear picture as soon as possible about the FLIC’s activities to the end of the first financial year of its operation. Of particular interest will be the progress towards raising a minimum of $5 million in concessional capital during the first 12 months of the FLIC’s operation (see requirements for first and second reports under items 101 and 201 of Schedule 1 of the Determination).
The information required in interim reports is very similar to information required in annual reports, except that audited financial statements are not required. These may also not contain as much detail as annual reports. Nonetheless, interim reports provide valuable information to the Minister about how the FLIC is tracking against its performance targets, as well as the opportunity to alert the Minister to potential problems or unforeseen difficulties before the end of the financial year.
Subclause 5(2) provides that reports must include the content, or be accompanied by the information, set out under Schedule 1.
Clause 6 Reports – investment in provisionally certified films
Subclause 6(1) gives effect to subsection 35(3) of the Act which provides that the Reporting Requirements, for the purposes of monitoring compliance with section 34 of the Act, may require that the FLIC give a report to the Minister within six months in circumstances where the Minister has revoked the FLIC’s licence to raise concessional capital. It should be noted that the company whose licence to raise concessional capital has been revoked is still referred to as the “film licensed investment company” or “FLIC” and continues therefore to be bound by the Act. This is because the definition of “film licensed investment company” in subsection 6(1) of the Act is the company that has been granted the concessional capital licence under section 14 of the Act (whether or not the licence has stopped being in force).
The Minister may decide to revoke the FLIC’s licence under section 32 of the Act for a breach of a licence condition. Under subsection 34(1) of the Act, if the Minister has revoked the FLIC’s licence, but elected not to remove the concessional nature of the shares, the FLIC must invest concessional capital it has already raised in one or more provisionally certified films. This seeks to ensure that, even in circumstances where the licence is no longer in force, the Scheme’s objectives continue to be met.
Subclauses 6(2) and (3) of the Determination require the FLIC to provide evidence in its report to the Minister that capital has been invested in provisionally certified films and if not, an explanation as to why not. This will inform the Minister’s decision as to whether to take action under subsection 34(4) of the Act. Under subsection 34(4), if the Minister considers that the FLIC has not complied with subsection 34(1), he or she may remove the concessional nature of the shares.
While it is likely that any breach or suspected breach of licence condition would be remedied before the Minister would be required to take action, this clause provides a reporting mechanism in circumstances where action in response to a breach results in the revocation of the FLIC’s licence to raise concessional capital. A requirement to report in these circumstances protects the integrity of the Scheme.
Clause 7 Access to records
Subclause 7(1) provides that the FLIC must keep all accounting and other financial records and supporting materials explaining or evidencing business transactions. Such information would include, but is not necessarily limited to, information required to be produced for the purposes of meeting those obligations set out under Schedule 1 to the Reporting Requirements.
As indicated by subclause 7(2), the purpose of this requirement is to assist the Minister to monitor compliance with the Act and to evaluate the Scheme. In the case of a suspected breach of a condition of the Scheme, the Minister may seek information under section 30 of the Act for the purposes of making a decision about what action to take in relation to a breach of conditions, including information regarding business transactions.
Schedule 1 Material to be included in, or accompany, a report
Reports must contain the content set out below. The content requirements for each of the seven reports are set out individually for the purposes of clarity. While this leads to some repetition in the instrument, it is justified on the basis that most reports require reporting on distinct and specific milestones under the Scheme in addition to standard reporting information.
Part 1 First report
The first report is an annual report to 30 June 2006.
Item 101 requires that the FLIC provide information about progress towards meeting the $5 million capital raising requirement as set out in paragraph 22(a) and subparagraph 23(c)(i) of the Act. These provisions of the Act stipulate that the FLIC must raise $5 million in concessional capital during the first 12 months of the Scheme (from the date of issue of the licence); and that the FLIC must not invest concessional capital in a project before $5 million has been raised (or twelve months of the Scheme have elapsed, refer to subparagraph 23(c)(ii) of the Act). The intention is to both provide the licensee with the incentive to raise concessional capital from the outset and to ensure that it has a reasonable capital base to invest in quality projects with high production values. A requirement to report to the Minister on its progress towards this target provides an added incentive for the FLIC to reach the target. It also ensures that the Minister is adequately informed about progress in relation to capital raising at this stage of the FLIC’s operations.
Items 102 and 103 require that the FLIC provide a copy of its audited annual financial report to the Minister. This financial report must be prepared in accordance with Part 2M.3 of the Corporations Act 2001. This requirement recognises that the FLIC is a registered company and bound by reporting requirements under the Corporations Act 2001.
Item 104 requires the FLIC to report on its operations and progress against its business plan, including a progress report against its capital raising strategy. Matters to be dealt with under the FLIC’s capital raising strategy are described under items 6(c)(i) to (vi) of Schedule 1 to the FLIC (Application) Rules 2005 and include, for example,
co-investment opportunities, estimated returns and how those returns will be treated. Reporting against these items will allow the Minister to form a view about the FLIC’s progress towards achieving its goals and take into account any mitigating factors that may have prevented it from reaching its targets. This in turn allows assessment of the Scheme at this stage of operations. Progress reports against the FLIC’s capital raising strategies will be of most value up to the end of the concessional and non-concessional capital raising periods, that is up to 30 June 2008.
Item 105 requires that the FLIC provide to the Minister any document required under the Corporations Act 2001 which has been tabled at its annual general meeting or has been sent to its members. This requirement aims to ensure that the Minister is apprised of all information provided to the FLIC’s shareholders.
Item 106 states that the licensee must provide material required under Part 8 of the Schedule. Part 8 sets out what additional material is required for all reports in relation to structure and business activity, shareholder information, investment information and capital information.
Item 107 requires that the FLIC notify the Minister where shares are on-sold or traded during the reporting period. This requirement seeks to ensure that the second holder of the shares does not claim a deduction on those shares during the capital raising period of the Scheme. This concession would have already been claimed by the first shareholder. Combined with the information that must be provided to the Commissioner of Taxation under subsection 36(2) of the Act, this reporting requirement seeks to prevent improper claims for tax deductions and facilitate the administration of the Scheme for taxation purposes. It will also assist in monitoring compliance with the Act in accordance with paragraph 35(1)(a) and in meeting the object set out in paragraph 4(e) of the Act which deals with accountability and transparency.
Item 108 acknowledges that in some circumstances, the information sought under these Reporting Requirements may be required earlier than the same information is required under the Corporations Act 2001. This may include, for example, particular financial information. Items 108(a) and (b) require that the FLIC notify the Minister where this is the case and provide a draft of this information when it becomes available. In some cases, the information may be available earlier than the deadline imposed by the Corporations Act 2001 in which case the FLIC must hand over the information when it is completed. Subitem 108(c) requires that the FLIC provide the final report to the Minister at the same time it falls due with the Australian Securities and Investment Commission (ASIC). This way, the Minister will receive the same, up-to-date information provided in accordance with the Corporations Act 2001, and the FLIC will not have to reproduce the same information for two separate reporting requirements at different times for different purposes.
Item 109 applies uniquely to the first report and recognises that, as the report is due on 30 June 2006, there may be information sought under items 101 to 107 that is not available at the time of the first report’s preparation. In such circumstances, the FLIC must indicate the likely nature of the information (item 109(c)). This may involve projections. The FLIC must also indicate when the information is likely to become available and in any event, under item 109(b), must furnish the information as soon as possible after 30 June 2006. The FLIC must then confirm or amend information provided as an addendum to the report (item 109(c)). Item 109 acknowledges that, while the information needs to be delivered to the Minister in a timely manner, there may be practical impedients which prevent the FLIC from doing so on 30 June 2006.
Part 2 Second report
The second report is an interim report for the period from 1 July 2006 to 31 December 2006.
Item 201 requires a report on progress towards meeting the $5 million capital raising requirement (as discussed in relation to item 101 above). By the time the second report falls due, this requirement may have already been met, in which case the information should confirm this fact.
Item 202 requires a report of operations and progress against its business plan, including progress against its capital raising strategies. (This is discussed in relation to item 104 above).
Item 203 requires the FLIC to furnish financial statements for the six month period. This information must include a profit and loss statement, balance sheet, statement of cash flows and other relevant material. It is expected that the FLIC will maintain this information as part of its normal business operations and that therefore, its provision will not impose an undue administrative burden on the FLIC. This information will also provide the Minister with a valuable snapshot about the FLIC’s financial position midway through the financial year.
Item 204 requires the FLIC to notify the Minister when shares are on-sold or traded. (This requirement is explained in relation to item 107 above).
Item 205 requires that the licensee provide information that is required under Part 8 of the Determination. (This requirement is explained in relation to item 106 above).
Part 3 Third report
The third report is an annual report to 1 July 2006 to 30 June 2007.
Items 301 and 302 require that the FLIC provide a copy of its annual financial report and its audited annual financial report to the Minister. (This is explained in relation to items 102 and 103 above).
Item 303 requires a report of operations and progress against the FLIC’s business plan, including progress against its capital raising strategies. (This is explained in relation to item 104 above).
Item 304 requires that the FLIC provide to the Minister any document required under the Corporations Act 2001 to be tabled at its annual general meeting or to be sent to its members. (This is explained in relation to item 105 above).
Item 305 provides that the FLIC notify the Minister when shares are on-sold or traded. (This is explained in relation to item 107 above).
Item 306 provides that the FLIC must provide information that is required under Part 8 of the Determination. (This is explained in relation to item 106 above).
Item 307 acknowledges that information required under the Corporations Act 2001 may fall due at a later date than the deadline specified in this Determination. (This is explained in relation to item 108 above).
Part 4 Fourth report
The fourth report is an interim report for the period 1 July 2007 to 31 December 2007.
Item 401 requires a report of operations and progress against the FLIC’s business plan, including progress against its capital raising strategies. (This is explained in item 104 above).
Item 402 requires the FLIC to furnish financial statements for the six month period from 1 July 2007 to 31 December 2007. (This is explained in item 203 above).
Item 403 requires that the licensee provide information that is required under Part 8 of the Determination. (This is explained in item 106 above).
Item 404 requires that the FLIC provide information about the performance of its film and television projects. Performance refers to the FLIC’s commercial returns from productions and critical acclaim. It is considered that, by the time this report falls due, the FLIC will be in a position to begin to report on how projects in which it has invested are performing. In particular, this information must be provided in relation to:
- individual productions and the whole production slate (item 404(a)). This will assist in determining which genres and formats are most successful in the current environment as well as assisting the Minister to determine whether there is an appropriate balance of genres and formats across all of the FLIC’s productions;
- local and international sales of productions (if available) and to which geographical areas the sales were made (item 404(b)). This will allow the Minster to establish which types of productions are in demand domestically and what types of projects appeal internationally. Geographic area refers to a marketplace where a company, usually a distributor, has purchased the rights to show a particular production. Often referred to as a ‘territory’, such a geographical area may include one country or several countries or regions grouped together (that have a common language, for example);
- box office takings, viewers on free-to-air television and screenings on pay television and other media, such as the Internet (item 404(c)). This will allow the Minister to determine the audience reach of the FLIC’s projects across the range of formats and genres in which it has chosen to invest; and
- the level of returns, if any, and whether those returns have flowed to the FLIC’s shareholders (item 404 (d)). This provides information both about the overall performance of the FLIC and its investment strategy as well as indicating whether the FLIC model is an effective investment vehicle.
If the above information is not available at the time that the report falls due, item 404(e) requires the FLIC to provide and explanation in writing as to why it is not available. This recognises that the level of detail in relation to the FLIC’s performance will vary, with more information likely to be available towards the end of the Scheme’s operation when more of the FLIC’s projects would have been exposed to the marketplace.
The above information will be a valuable tool in assisting the Minister to evaluate the Scheme under subsection 35(1)(b) of the Act and the extent to which the objects of the Scheme are being met.
Part 5 Fifth report
The fifth report is an annual report for the period 1 July 2007 to 30 June 2008.
Items 501 and 502 require that the FLIC provide a copy of its annual financial report and its audited annual financial report to the Minister. (This is explained in items 102 and 103 above).
Item 503 requires a report of operations and progress against the FLIC’s business plan, including progress against its capital raising strategies. (This is explained in item 104 above).
Item 504 requires that the FLIC provide to the Minister any document required under the Corporations Act 2001 which has been tabled at its annual general meeting or has been sent to its members. (This is explained in item 105 above).
Item 505 requires that the FLIC provide information that is required under Part 8 of the Determination. (This is explained in item 106 above).
Item 506 provides that the FLIC must provide information about the performance of its production slate. (This is explained in item 404 above).
Item 507 requires that the FLIC provide evidence that it has invested all capital raised, including both concessional and non-concessional, by 30 June 2008. This will assist the Minister to determine whether the FLIC has complied with paragraphs 23(a) and (b) of the Act.
Item 508 acknowledges that information required under the Corporations Act 2001 may fall due at a later date than the deadline specified in this Determination. (This is explained in item 108 above).
Part 6 Sixth report
The sixth report is an interim report for the period 1 July 2008 to 31 December 2008.
Item 601 requires the FLIC to report on progress against its business plan. As all funds raised by FLIC, whether concessional or non-concessional, need to be invested by 30 June 2008, there is no specific requirement for the FLIC to report against its capital raising strategy. The report required under this item should therefore be a general report against its business plan.
Item 602 requires the FLIC to furnish financial statements for the six month period. (This is explained in item 203 above).
Item 603 requires that the FLIC provide information that is required under Part 8 of the Determination. (This is explained in item 106 above).
Item 604 provides that the FLIC must present information about the performance of its production slate. (This is explained in item 404 above).
Part 7 Seventh report
The seventh report is an annual report for the period 1 July 2008 to 30 June 2009.
Items 701 and 702 require that the FLIC provide a copy of its audited annual financial report to the Minister. (This is explained in items 102 and 103 above).
Item 703 requires a report of operations and progress against the FLIC’s business plan. (This is explained in item 601 above).
Item 704 requires that the FLIC provide to the Minister any document required under the Corporations Act 2001 which has been tabled at its annual general meeting or has been sent to its members. (This is explained in item 105 above).
Item 705 requires that the licensee provide information that is required under Part 8 of the Determination. (This is explained in item 106 above).
Item 706 provides that the FLIC must provide information about the performance of its production slate. (This is explained in item 404 above).
Item 707 requires that the FLIC provide evidence that all of its projects have received a final certificate under section 124ZAC of the Income Tax Assessment Act 1936. This will assist the Minister to determine whether the FLIC has complied with paragraph 25(b) of the Act.
Item 708 acknowledges that information required under the Corporations Act 2001 may fall due at a later date than the deadline specified in this Determination. (This is explained in item 108 above).
Part 8 Additional material for all reports
Part 8 identifies information that must be included in all reports, whether annual or interim reports.
Structure and business activity
Items 801 to 806 set out circumstances where the FLIC must notify, or copy information to, the Minister about matters relating to its structure or business activities. This will keep the Minister apprised of significant events which may impact on the FLIC’s operations. It will also assist the Minister for the purposes of monitoring compliance with the Scheme under paragraph 35(1)(b) of the Act.
Accordingly, the FLIC must provide, if applicable:
- a copy of amendments to its constitution (item 801) and a copy of all documentation filed with ASIC (item 802). The purpose of these two items is to ensure that the conditions of the licence set out under section 13 of the Act continue to be met.
- a copy of all documentation provided to investors or potential investors in relation to the FLIC’s financial affairs (item 803), information about any changes to the FLIC’s management structure and operations (item 804) and information about ceasing or commencing significant business activity (item 805). These items are intended to safeguard the accountability and transparency provisions of the Act.
- information about acquisition or disposal of a significant shareholding (item 806). This is to ensure that the FLIC complies with the ownership provisions of the Act as set out in section 40 and Schedule 1 of the Act.
Shareholder information
Items 807 to 809 require the FLIC to provide a range of information about issuing of shares. This information will assist compliance with subsection 36(2) of the Act which requires the Secretary of the Department of Communications, Information Technology and the Arts to provide to the Commissioner for Taxation as soon as possible after the end of the financial years 2005-06 and 2006-07 the number of shares issued during the year by the FLIC; the names and addresses of the shareholders to whom the shares were issued; and the amount paid by each shareholder for the shares. This will allow the proper administration of taxation matters connected with the FLIC Scheme.
Item 808 also requires the FLIC to identify the nationality of each shareholder. The purpose of this item is to ensure that the FLIC complies with the ownership restrictions under the Act.
Investment information
Items 810 to 817 require the FLIC to provide a range of information to the Minister about the individual projects in which it has decided to invest. The FLIC would produce this information as part of its normal business operations. The purpose of providing this information is that it allows the Minister to satisfy himself or herself that the FLIC’s investments are made in accordance with industry best practice and that business activity associated with investment is transparent, accountable and complies with the Act. Accordingly, in relation to each project, the FLIC must provide:
- the time frame for development and production and the project’s expected completion date;
- progress reports on the development and production and on marketing and distribution activity (if any);
- sales and exhibition;
- a production audit report, being an audited statement made by the producer of the film, including details of all income and expenditure relating to the project and information about under- and overspends;
- a copy of the production investment agreement for each project for which investment has been made; and
- a copy of each provisional certificate issued under Division 10BA of Part III of the Income Tax Assessment Act 1936.
Capital information
Items 818 to 821 require the FLIC to provide information about the raising and expenditure of capital and the issuing of any returns on that capital. The purpose of these items is to enable an assessment to be made as to whether the FLIC has complied with the requirements of the Act in relation to capital raising, capital expenditure and administration costs and to measure the commercial success of the Scheme.