SARS recently published a draft legislation that will deal with tax allowances to be claimed in respect of production costs and post production costs in respect of films. Even though a film owner can still claim a film allowance in respect of production costs and post production costs once used by the film owner in the production of income, a number of principles have been restated –
- the completion date of the film, being the date from which allowances can be claimed, is the date on which it is in a form in which it can be regarded as ready for copies to be made and distributed, for presentation to the general public;
- the costs can be claimed as a deduction if at least 75% of the expenses have been incurred and are paid or payable in South Africa. If this is not the case, only South African based expenses to the extent pay to persons who are subject to tax in South Africa can be claimed as a deduction. This results in the incentive only being limited to South African film productions or costs incurred expanded in South Africa in order to grow and support the local film industry;
- a provision will be inserted to the effect that the amount of the expenditure should be paid within a period of eighteen months from the completion date of the film. Otherwise allowances have been claimed in circumstances where the costs were only payable over an extended period;
- the allowance will not be granted in respect of expenses that have been funded through means of loans where the film owner is not at risk. A film owner is deemed to be at risk if he is obliged to repay the loan and even though no income is received in respect of the film in future years from the exploitation of the film. However, if the loan is not repayable within ten years from the completion date, the film owner is not deemed to be at risk and the corresponding allowance cannot be claimed.
It thus follows that, even though the intention has been restated to support the South African film industry, the screws have been tightened a bit so as to avoid abuses. Incentives are only available to the extent that it actually supports the local film industry. In order to reduce the risk to the film owner, use is sometimes made of a so called minimum guarantee in respect of the income of the film which would at least cover the production and/or post production costs. It has also been indicated that SARS will closely scrutinise the actual costs so as not to enable a film owner to artificially increase these costs in respect of which the allowance is claimed.
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