Since 1999, the Australian government has undertaken a program of significant business taxreforms. The result is a changed Australian tax landscape that includes the broad-based goods and services tax (GST), tax consolidation regime, specific tax rules to classify financial instruments as debt or equity, thin capitalization rules, simplified dividend imputation rules, comprehensive tax rules for recognizing and calculating foreign exchange gains and losses, and new rules redefining the taxation of financial arrangements.
On the international front, recent developments include the debate around Base Erosion and Profit Shifting (BEPS), which is driving Australian tax reform. In addition, there has been a re-write of Australia’s transfer pricing rules, which are intended to more closely align Australia’s transfer pricing rules to the OECD model guidelines. There have also been changes proposed to the thin capitalization rules that would limit interest deductions to the extent that gearing exceeds 60% of the value of assets (a reduction from the previous threshold of 75%).
Of direct relevance for film projects was the phasing out of the Division 10B and Division 10BA tax incentives, and the introduction of the new Australian Screen Production Incentive as a result of a review in 2006 to reform and strengthen the Australian screen media industry. The shift toward producer-based incentives was intended to make Australia a more attractive location for overseas film investment by improving the accessibility of the tax offsets available.
In 2008, a new authority named Screen Australia was established to bring together the functions of the Australian Film Commission, Film Finance Corporation Australia Limited and Film Australia Limited, and carry out additional functions regarding the support and promotion of Australian film, and the provision of tax incentives to film producers. The Screen Australia Web page (http://www.screenaustralia.gov.au) and the Attorney-General’s Department – Ministry for the Arts Web page (http://arts.gov.au/film-tv/australian- creenproduction-incentive) provide relevant information for taxpayers wishing to invest in the film industry.
There are three types of producer incentives available; the Producer Offset, the Location Offset and the Post, Digital and Visual Effects Production (PDV) Offset. The offsets can only be claimed by a production company that is either an Australian resident or a foreign resident that has a permanent establishment in Australia and has an Australian business number (ABN). Only one of the three offsets may be claimed for a film production.
Production companies should therefore carefully consider which offset (producer, location, or PDV) is most appropriate to their individual circumstances given the fact that certification for one offset prohibits certification for the other two.
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