Australia: Film offset regime of tax incentives remains unchanged despite industry lobbying

Despite some intensive lobbying from industry and the Queensland State Government, this year's Budget left the Australian Screen Production Incentive (more commonly known as the Offset Regime) largely untouched. Kemp Strang sees this as an opportunity lost to the government to increase Australia's global competitiveness in the field and attract a greater share of big-budget production (and post production) to Australia as well as creating greater incentive for the local industry.

Under the current Offset Regime, film and television productions may be eligible for tax incentives by way of deduction or offset. The tax incentives were designed to encourage investment in film and television projects which have an Australian component – whether by producer and content, location of principal photography, or due to the carrying out of post, digital or visual effects.

As an experienced advisor to the film financing sector and having worked on a number of recent big-budget films which took advantage of the Regime (including Hacksaw Ridge, The Water Diviner and Pacific Rim: Uprising), we share the concern of major industry groups that Australia may be losing out on significant opportunities to other jurisdictions which offer a similar tax incentive.

Current Offset Regime

The Offset Regime is Australia's principal, and most easily accessed, tax incentive with respect to investment in film and television productions.

It is broken down into 3 streams, only one of which may be claimed in respect of a given film:

  • the Producer Offset, being a refundable tax offset in the amount of between 20% (for a non-feature film) and 40% (for a feature film) of "Qualifying Australian Production Expenditure" (QAPE) where the producer is an eligible entity and the film contains "Significant Australian Content"; OR
  • the Location Offset, being a refundable tax offset in the amount of 16.5% of the QAPE; OR
  • the PDV Offset, being a refundable tax offset in the amount of 30% of qualifying post, digital and / or visual effects expenditure.

Various other additional requirements must be met in respect of each of the above (including minimum QAPE and residency of claimant) in order to successfully claim the relevant Offset.

Significance of Australian Screen Industry

The screen industry is a major contributor to the Australian economy. Deloitte estimates that in the 2014-15 financial year, the industry contributed $3,072 million in value add and the equivalent of 25,304 full time equivalent jobs with respect to 'Australian' content alone, with an additional $382 million and 4,093 full time equivalent jobs contributed by non-Australian productions. The film and television sector clearly falls within the scope of a 'smart economy' with most jobs involving skilled and technically qualified people.

However, a 2015 Deloitte report also indicated that foreign production spending has barely increased since the most recent refinements were made to the Offset Regime in 2011. The Regime has remained largely unchanged since its current incarnation in 2007, and as indicated by Screen Australia's recent figures, it appears to us that Australia may be losing its competitiveness with jurisdictions which offer similar tax incentives, like New Zealand , Canada and South Africa.

Let's take a look at how Australia's incentive Regime compares to those available some in competing jurisdictions.

How Does Australia Compare

A number of jurisdictions offer tax incentives or rebates on a similar basis to those available in Australia (i.e., in 2 or 3 streams roughly corresponding to Australia's Producer, Location and PDV Offsets).

The table below shows how Australia compares to some of those competing jurisdictions.

Jurisdiction Producer Location Post / Digital / Visual Effects
% of qualifying expenditure/how is it paid
Australia Refundable offset of 20% (non-feature) - 40% (feature) Refundable offset of 16.5% Refundable offset of 30%
New Zealand 40% cash grant up to NZ$15million

20% cash grant

Additional 5% possible on invitation to apply

20% cash grant up to NZ$25 million; 15% over NZ$25 million
South Africa 35% rebate up to R6 million; 25% thereafter 20% rebate (capped at R50 million) + additional 2.5% if post production conducted in South Africa 17.5% rebate up to R3 million; 20% over R3 million
Fiji

4 streams, 1 applicable to fully-funded off-shore productions (including commercials) (dependant on minimum qualifying Fijian spend and evidence of distribution ability)

47% rebate up to FJ$28.2million

Ireland

One stream only, dependant on spend, residency / trading requirements and cultural test

32% credit of the lower of all eligible expenditure, 80% of the total cost of production and €70 million

Canada Depending on province, producers can access combined federal and provincial tax credits ranging from 32% to 70% of eligible labour, as well as tax incentives on local qualifying spend ranging from 20% to 30%

Calls for Reform

The financial incentives on offer in Australia are not market-leading, with the result that the Location Offset, which should be a highly attractive stream for international big-budget films, appears significantly underutilised. Figures from the Attorney General's Department indicate only 56 applications final certificate were received for both the PDV and Location Offset in 2014/15, compared with 149 final certificates which were issued by Screen Australia the Producer Offset in the same year.

State governments of Australia, largely through the respective State film agencies have a part to play and it is commendable that Queensland has at least made its voice heard on the issue of film incentives. While there is obvious self-interest involved it would be a step in the right direction for the State agencies to work together on this area.

Kemp Strang's view is that, at the least, the Location Offset should match what's on offer at its nearest neighbour, New Zealand. Even better if Screen Queensland's recommendation to increase the Location Offset to 30% of QAPE were implemented.

Do you think it's time for the Offset Regime to be revised? If so, what changes would you like to see to make Australia a more attractive destination for film and television production investment? Let us know what you think so we can assist the industry with approaches to government.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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