EXPLANATORY STATEMENT
Location Offset Rules 2008 (Amendment No. 1 of 2011)
Issued by the Authority of the Arts Minister.
Abbreviations
The following abbreviations are used in the Explanatory Statement:
Bill Tax Laws Amendment (2010 Measures No. 5) Bill 2010
incentive Australian Screen Production Incentive
ITAA97 Income Tax Assessment Act 1997
proposed Amendment Location Offset Rules 2008 (Amendment No. 1 of 2011)
PDV Post, Digital and Visual Effects Offset
QAPE qualifying Australian production expenditure
Rules Location Offset Rules 2008
The Australian Screen Production Incentive (Incentive) is the Australian Government’s incentive for film, television and other screen production in Australia. It is available in three streams:
- Producer Offset – a 40 per cent rebate on the qualifying spend of Australian films and a 20 per cent rebate for other qualifying media
- Location Offset – a 15 per cent* rebate on Australian spend on large budget (over $15 million) films that do not satisfy the significant Australian content test of the Producer Offset
- Post, Digital and Visual Effects (PDV) Offset – a 15 per cent** rebate on the qualifying Australian PDV spend on a film, including those not necessarily shot in Australia.
The Incentive was introduced by the Tax Laws Amendment (2007 Measures No. 5) Act 2007, which amends Division 376 of the Income Tax Assessment Act 1997 (ITAA97).
In the 2010-11 Budget, the Government announced two changes to the Incentive. If enacted, Schedule 1 of the Tax Laws Amendment (2010 Measures No. 5) Bill 2010 would amend Division 376 of the ITAA97 to make changes to the eligibility criteria for accessing the Location and PDV Offsets. The minimum qualifying expenditure threshold for the PDV Offset would be reduced from $5 million to $500,000. The requirement for films with qualifying Australian production expenditure (QAPE) of less than $50 million to have at least 70 per cent of the total of all the company’s production expenditure on the film as QAPE in order to qualify for the Location Offset, would also be removed. In addition, given the removal of the 70 per cent threshold under the Location Offset, it would no longer be necessary for applicants to be able to nominate one person’s remuneration that should be excluded from their production expenditure for the purpose of meeting the threshold (this provision was designed to help some productions meet the threshold, so now that the threshold is being removed, the provision is not necessary).
As a consequence of the proposed amendments to the ITAA97 described above, the Location Offset Rules 2008 (the Rules) also require amendment. The Arts Minister makes such rules pursuant to subsection 376-260 (2) and (3) of the ITAA97. The Minister can make amendments to the Rules by virtue of those subsections of the ITAA97 and subsection 33(3) of the Acts Interpretation Act 1901.
The Location Offset Rules 2008 (Amendment No. 1 of 2011) (proposed Amendment) is a legislative instrument within the meaning of the Legislative Instruments Act 2003. The gazettal requirement in subsection 5(1) of the Act is taken to be satisfied if the instrument is registered in the Federal Register of Legislative Instruments (subsection 56(1) of the Legislative Instruments Act 2003).
It is proposed that the proposed Amendment take effect on the day and time that the Bill receives the Royal Assent.
Purpose of the Location Offset Rules 2008
The purpose of the Rules is to: provide for the issue of provisional certificates in relation to the Location Offset (see subsection 376-260 (2) of the ITAA97); and specify how applications for certificates – including provisional certificates – in relation to the Location Offset are to be made (see subsection 376-260 (3) of the ITAA97).
Impact
The proposed Amendment would change the application requirements for the Location Offset to reflect the amendments proposed to be made to the ITAA97 in the Tax Laws Amendment (2010 Measures No. 5) Bill 2010. Applicants for the Location Offset would no longer be required to demonstrate that they meet the 70 per cent threshold, so they would not need to provide expenditure statements for the entire film. Applicants would also only be required to provide expenditure statements for the claimed QAPE amount. References to the nomination of one person’s remuneration to be excluded from the total production expenditure are also proposed to be removed.
Essentially, the amendments to the ITAA97 expand access to the film tax offsets. The changes to eligibility requirements were a response to calls from the Australian film industry to help attract offshore productions to Australia.
The proposed amendment of the Location Offset Rules 2008 will align them with the amended ITAA97 and in doing so, will simplify the application requirements and thereby reduce the administrative burden on applicants for the Location Offset.
Consultation
Screen Australia and the Australian Taxation Office were consulted in the drafting of the proposed Amendment. Wider consultation was not considered necessary as the public was aware of the amendments in the context of the 2010-2011 Budget.
Notes on modifications
Item 2
The Rule 4 note is to be amended to remove the term ‘production expenditure’ as it will no longer be required in the Rules due to the proposed changes to the ITAA97.
Item 3
Rule 6 is to be amended to remove references to different requirements for films that have budgets either between $15 and 50 million or above $50 million. There will no longer be a requirement for the applicant company to be responsible for carrying out, or making the arrangements for carrying out, the making of the film outside of Australia.
Items 4 and 5
Rule 7 subrule (4) and (5) are to be amended to remove references to different application requirements for films that have budgets either between $15 and 50 million or above $50 million. The requirements for eligible films in any budget range are proposed to be the same. Specifically, films are no longer required to provide expenditure statements for their ‘production expenditure’ (expenditure in Australia and in other countries). As a result, expenditure statements would need only relate to the qualifying Australian production expenditure on the film.
Rule 7 subrule (7) and Rule 9 subrule (3) are to be omitted because they relate to the exclusion of one person’s remuneration to be disregarded for an application for a provisional certificate. That exclusion will no longer be necessary because given the proposed removal of the 70 per cent threshold under the Location Offset, productions would no longer need assistance to meet the threshold which was the original purpose of the exclusion provision.
Rule 9 paragraph (5)(b) is to be amended to remove reference to ‘production expenditure’.
Item 6
Rule 17 subrule (3) is to be omitted and subrule (4) is to be amended to remove references to different requirements for films that have budgets either between $15 and 50 million or above $50 million. The requirements for films in any budget range are proposed to be the same. These amendments reflect the amendments proposed in relation to provisional certificates.
Item 7
Rule 19 paragraph (4)(b) is to be amended to remove reference to ‘production expenditure’.
Item 8
Rule 23 subrule (1) is to be amended as it refers to the amended Rule 7 (see ‘Part 2’ above).
Rule 23 paragraph (3)(c) is to be omitted as it relates to the exclusion of one person’s remuneration to be disregarded for an application for a provisional certificate (see explanation in items 4 and 5).
Rule 23 subrules (3) and (4) are to be amended to remove references to different requirements for films that have budgets either between $15 and 50 million or above $50 million.
Item 9
Rule 24 subrule (1) is to be amended as it refers to the amended Rule 17 (see ‘Part 3’ above).
Rule 24 paragraph (3)(c) is to be omitted as it relates to the exclusion of one person’s remuneration to be disregarded for an application for a provisional certificate (see explanation in items 4 and 5).
Rule 24 subrules (3) and (4) are to be amended to remove references to different requirements for films that have budgets either between $15 and 50 million or above $50 million.
Item 10
Rule 25 is to be amended as it refers to the amended Rule 17 (see item 6 above).
Item 11
Rule 26 is to be amended as it refers to the amended Rule 17 (see ‘Part 3’ above).
Item 12
Schedule 1 outlines information and documents required for an application for a provisional certificate.
Part A clause 1.9 note 1 is to be omitted and note 2 is amended (including to become the only note) as they relate to different requirements for films that have budgets either between $15 and 50 million or above $50 million which will no longer be relevant once the Bill is enacted.
Item 13
Part A clause 2.7 is to be omitted as it requires applicants to advise whether the film’s budget is either between $15 and 50 million or above $50 million and this will no longer be relevant.
Item 14
Schedule 2 outlines information and documents required for an application for a Location Offset certificate.
Part A clause 1.9 note 1 is to be omitted and note 2 is amended (including to become the only note) as they relate to different requirements for films that have budgets either between $15 and 50 million or above $50 million and this will no longer be relevant once the Bill is enacted.
Item 15
Part A clause 2.8 of Schedule 2 is to be omitted as it requires applicants to advise whether the film’s budget is either between $15 and 50 million or above $50 million and this is no longer relevant.
Item 16
Part B clause 1.2(c)(ii) of Schedule 2 is to be amended to refer to ‘qualifying Australian production expenditure’ rather than ‘production expenditure’, which will no be longer required to be reported on in an application.
Item 17
Schedule 3 outlines the required form of an auditor’s statement.
It is to be amended to remove reference to different requirements for films that have budgets either between $15 and 50 million or above $50 million. It has also been amended to remove the requirements related to the auditing of ‘production expenditure’.
Item 18
This item sets out the commencement and application details for the proposed Amendment.
The proposed Amendment is to take effect when the Bill containing the proposed amendments to the ITAA97 receives the Royal Assent. However, the Amendment will only apply to a film which commences principal photography or production of the animated image in Australia on or after 1 July 2010. For films which commenced principal photography or production of the animated image in Australia prior to 1 July 2010, the Rules as they currently exist prior to the proposed Amendment will apply. These application provisions are in accordance with the proposed application provisions as set out in the Bill.