Recent changes to the Australian tax incentive/rebate for large budget screen production in Australia, the Location Offset, further enhance the financial and other benefits of producing Down Under.
The Australian screen production incentive was introduced in 2007 to provide financial incentives in the Australian income taxation system to support screen production in Australia.
Three refundable tax offsets
The screen production incentive provides three tax offsets for certain Australian production expenditure incurred by a production company where a minimum level of expenditure has been incurred. The three offsets are:
- the Location Offset
- the Producer Offset
- the Post, Digital and Visual Effects (PDV) Offset.
Each of the offsets is a refundable tax offset, the amount of which is first applied by the Australian Taxation Offset against the applicant company's Australian tax liability (if any) for the year in which the screen production was completed, and the remainder is paid to the applicant company. If the applicant company has no tax liability for the relevant year (which will usually be the case if it's a special purpose vehicle established solely for the production of the screen project), the full amount of the offset will be paid to the applicant company. A production may only apply for one of the offsets.
The Location Offset, which is the subject of this article, is only available to large budget screen projects, and is the incentive most frequently used by large Hollywood film and television projects produced in Australia. The policy reason for this incentive is stated to be –
The Location Offset does not have a cultural requirement and projects do not have to be 'footloose' – they can be committed to produce in Australia. There is also no requirement that a minimum percentage of the total production budget for the screen project be spent in Australia.
Increase in the Location Offset from 16.5 per cent to 30 per cent from 1 July 2023
The amount of the Location Offset has been increased from 16.5 per cent to 30 per cent of Qualifying Australian Production Expenditure (QAPE) from 1 July 2023. The 30 per cent rate and the other new eligibility requirements referred to below apply to eligible productions that commence principal photography or production of the animated image on or after 1 July 2023.
Previously, a payment from the Department of Infrastructure, Transport, Regional Development, Communications and the Arts (Department) under the Location Incentive Program was available to applicants for the Location Offset to 'top-up' the amount of the Location Offset to a maximum of 30 per cent of QAPE. However, the Location Incentive Program, which ceased accepting applications on 30 June 2023, was subject to annual expenditure caps, as well as a total cap for the entire Program, which meant that it lacked certainty for producers who could not be sure that their project would be able to receive funding without the cap being exceeded.
The Location Offset is uncapped and unlimited.
Increase in the minimum Australian expenditure requirement
The minimum QAPE for a screen project to qualify for the Location Offset has been increased from AU$15 million to AU$20 million, and the minimum QAPE per hour of a television series has been increased from AU$1 million to AU$1.5 million. These increases took effect on 1 July 2023.
Currency conversion for the purpose of calculating whether the minimum QAPE thresholds are reached is calculated on the first day of principal photography or production of an animated image.
Additional requirements from 1 July 2023
In addition to meeting the minimum Australian expenditure requirement, from 1 July 2023, a production must meet minimum training obligations or contribute to the sector's broader workforce and infrastructure capacity. Draft legislation which will implement the changes in the Location Offset with effect from 1 July 2023 has not yet been released, but it is considered likely that there will be a minimum expenditure requirement on training or workforce and infrastructure capacity.
The production must also use one or more Australian providers to deliver post, digital and visual effects for the production.
New reporting requirements will be introduced with effect from 1 July 2023 as part of the Location Offset application process (which occurs after the completion of production in Australia) to capture data, including employment of Australian crew and use of Australian businesses.
Qualifying Australian Production Expenditure (QAPE)
QAPE is expenditure incurred in Australia in, or in relation to, the making of the production including pre-production, production and post-production. QAPE includes expenditure on goods and services provided in Australia, the use of land located in Australia, and the use of goods that are located in Australia at the time they are used in the making of the production.
Australian development expenditure and expenditure on the acquisition of Australian-held copyright is included in QAPE, but overseas development expenditure and expenditure on the acquisition of foreign-held copyright is excluded. Most expenditure on financing, marketing, publicity, distribution, and deferred profit participations and similar payments are excluded from QAPE because they are not considered to be production expenditure.
Eligible applicants and formats
The applicant must be a company which is an Australian resident or is a foreign resident with a permanent establishment in Australia and an ABN. In addition, the applicant company must itself have carried out, or made the arrangements for carrying out, all the activities in Australia necessary for the making of the screen project.
The applicant for the tax offsets must be a company – individuals, partnerships and trusts are ineligible – and only one of the three offsets may be applied for.
To be eligible for the Location Offset, a film (which is defined broadly as an aggregate of images, or of images and sounds, embodied in any material) must:
- be produced for exhibition to the public in cinemas or by way of television broadcasting (including via online streaming) or distribution to the public as a video recording (e.g.: on DVD);
- be a feature film or film of a like nature (e.g.: a telemovie) but not a documentary;
- be a mini-series of television drama; or
- be a television series, including a television documentary series; and
- not be a short film, a documentary feature, an advertising program or commercial, a discussion program, a quiz program, a game show, a panel program, a variety program, a film of a public event, a training film, or a computer game.
An application to the Department for a certificate for the Location Offset may be submitted at any time after the production has ceased incurring QAPE. In practice, this means that production of the film or television series in Australia will have been completed. A copy of the completed film or series, in the form it will be released to the public, must be provided to the Department within 30 days after its completion.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
