ANNEX D: COMPARISON OF FILM TAX RELIEF
AND OTHER SUPPORT IN AUSTRALIA, CANADA, REPUBLIC OF IRELAND AND
NEW ZEALAND.
Australia
The Federal Government has introduced a number of
tax incentives over the years to attract private investment to
the Australian film industry including Divisions 10BA and 10B
of the Income Tax Assessment Act 1936 and, more recently, the
Film Licensed Investment Company (FLIC) scheme.
Under Division 10BA of the Income Tax Assessment
Act 1936 (the Tax Act) investors acquire an interest in the copyright
of new, qualifying, Australian programs and receive a 100% tax
concession as a result. 10B A aims to encourage private investment
in culturally relevant, high-quality Australian film and television
productions.
Division 10B is a broader-based concession whereby
initial investors who acquire an interest in the copyright of
new, qualifying productions receive a 100% tax concession over
two financial years once the film exists and is used to produce
income. Division 10B tax concessions, available on completion
of a project, apply to a greater number of categories than 10BA
and include feature films, documentaries, mini-series, series,
short dramas, multimedia formats such as CD-ROMs, plus promotional,
variety, educational and training material as well as large-format
programs. Projects must be assessed as wholly or substantially
made in Australia.
The Tax Act was amended in 1998 to introduce the
pilot Film Licensed Investment Company (FLIC) scheme, which carried
a 100% tax concession over the financial years 1998-99 and 1999-2000.
Investors received deductions for buying shares in a FLIC, which,
in turn, invested in qualifying Australian programs. Concessions
ended June 2000, but non-concessional investment in a FLIC continues
to 30 June 2002. Unlike 10BA and 10B investments in single projects,
shares in a FLIC support a number of programs at once, called
slate funding.
In September 2001, the Federal Government also announced
a refundable tax offset as an incentive for large-budget film
and television productions to shoot in Australia. The new incentive
is deliverable through a direct payment to producers in the form
of a refundable tax offset paid through the tax system. The offset
will be applied at a fixed rate of 12.5% of qualifying Australian
expenditure on a film project. Films with Australian expenditure
between $15 million and $50 million will have to spend 70% of
their total expenditure in Australia to qualify. Films with Australian
expenditure over $50 million will not have to meet the 70% requirement.
Tax deductions will continue to be available under Divisions 10B
and 10BA of the Income Tax Assessment Act 1936 but a film cannot
receive both the new tax offset and the existing 10B or 10BA deductions,
or Australian Film Corporation (FFC) funding. The tax offset
provides a benefit worth 12.5% of qualifying production expenditure,
with the key requirement being a minimum Australian expenditure
of $15 million. The scheme is restricted to feature films, mini-series
and telemovies, although 'bundling' other television projects,
to meet the $15 million dollar minimum is under consideration.
Producer apply for the offset on completion of the project.
At the same time a 'local industry package' to increase
support for production, development and the use of new technologies
aimed at ensuring Australia remained at the cutting edge of production
and post-production. The local funding package compromised increased
funding totalling $92.7 million form 2001-02 to 2005-06. Amongst
recipients were the Australian Film, Television and Radio School
(AFTRS) receiving an additional $0.5 million in 2001-02, and an
additional $1 million per annum from 2002-03 (indexed) to lease
digital equipment, so students could learn with the most up-to-date
technology now being used throughout the industry. The film industry's
inward investment body, AusFILM, received $1 million per annum
(indexed) from 2002-03 to provide a one-stop-shop for foreign
producers enabling them to easily meet their requirements at all
levels of government.
Official Agencies
The Australian Film Commission (AFC) is the Federal
Government's agency for supporting the development of film, television
and interactive digital media projects and their creators, particularly
in the independent sector. The AFC provides resources, mainly
in the form of finance and information, to people, projects, organisations
and events. Integrated with ScreenSound Australia (the National
Screen and Sound Archive) from 2003/04.
The Australian Film Finance Corporation (FFC) is
a wholly owned Commonwealth company providing support for feature
films, telemovies, mini-series and documentaries. It supports
a diverse range of culturally relevant material through equity
investment, undertaken in partnership with the film and television
marketplace, including distributors, sales agents, broadcasters
and private investors.
Film Australia is a Federal Government-owned production
and distribution company; it is one of the nation's largest producers
and distributors of television documentaries and educational programs.
Through the National Interest Program it receives finance to devise,
produce and distribute programs which deal with matters of national
interest to Australia or illustrate and interpret aspects of Australian
life. The 1988-89 figure published in previous editions of Get
the Picture has been revised to exclude a $10 million capital
injection for purchase of shares in the company (Film Australia
Ltd) which commenced in that year.
ScreenSound Australia (the National Screen and Sound
Archive) plays a leading role in preserving and collecting Australia's
film, television and sound heritage. Total revenues from the Federal
Government have increased in recent years to allow for loan payments
on the new headquarters building and to maintain the capital value
of the collection. Integrated with the Australian Film Commission
from 2003-04.
Federal Budget allocations to key federal film agencies
(excluding broadcasters and regulatory bodies) rose from $15.2
million in 1980-81 to $131 million in 2002-03.
Canada
Background
In 1974, the Government of Canada introduced a fiscal
incentive, in the form of a capital cost allowance, designed to
assist the Canadian film industry to attract private financing.
While this measure had some success in fostering production, it
did not address issues related to distribution or improving access
to screens. In 1984, recognizing that the Canadian film and video
industry had not yet fulfilled its economic and cultural potential,
the Government introduced the National Film and Video Policy.
One of the Policy's main achievements was the creation of the
Feature Film Fund in 1986. Administered by Telefilm Canada, the
Fund's purpose was to support investment in high-quality, culturally
significant Canadian films for theatrical release.
In 1998, to encourage better market access for Canadian
productions the Canadian government adopted its Film Distribution
Policy. One element of the policy was the establishment of foreign
investment policy guidelines under the Investment Canada Act.
The guidelines state that:
- foreign takeovers of Canadian-owned
and controlled film distribution businesses will not be allowed;
- new foreign distribution businesses will only
be allowed to distribute proprietary films (proprietary films
are considered to be any film where the distributor owns world
rights or is a major investor); and
- takeovers of foreign distribution businesses
operating in Canada will be reviewed to determine their net benefit
to Canada. Along with the new policy on foreign investment, the
1988 initiative led to the creation of the Feature Film Distribution
Fund administered by Telefilm Canada.
In 1995, the capital cost allowance was replaced
by the Canadian Film or Video Production Tax Credit, a better-targeted
program that reimburses producers for a portion of their expenses.
The 1997 Film or Video Production Services Tax Credit encourages
Canadian and foreign film-producers to employ Canadians for production
services performed in Canada. In 1996, the Government announced
the creation of the Canada Television and Cable Production Fund.
This public- and private-sector partnership contributes to the
funding of high-quality Canadian French- and English-language
television programs. Of the Fund's total $200 million annual budget,
$15 million is targeted exclusively for the production of feature
films that eventually find their way to television broadcast.
In recognition that a healthy film industry needs
access to a growing pool of skilled filmmakers, a further goal
of the Canadian government is to provide stable and sustainable
funding for national training initiatives in the film sector.
It created a program for this purpose in April 1997, and creators
and professionals receive training through the Institut national
de l'image et du son, the Canadian Film Centre, the National Screen
Institute, and the Canadian Screen Training Centre. Alongside
these federal initiatives, provincial policies, programs and legislation
have been introduced to help promote Canadian feature films. Provincial
governments have established film and tax credit programs in British
Columbia, Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia,
and six provinces have direct funding programs.
Current Support
Telefilm Canada provides about $40 million annually
for the development, production, distribution, and marketing of
Canadian feature films. $15 million from the Canada Television
and Cable Production Fund supports the production. The Canadian
Film or Video Production Tax Credit provides Canadian producers
with about $60 million a year through a refundable tax credit
worth up to 25% of the costs of eligible labour costs. The Canadian
Film or Video Production Tax Credit provides Canadian producers
with about $60 million a year through a refundable tax credit
worth up to 25% of the costs of eligible labour costs. The new
Film or Video Production Services Tax Credit is worth up to 11%
of the cost of qualifying Canadian labour expenditures for production
services performed in Canada. The Foreign Investment Policy for
film distribution helps ensure that foreign investment in the
Canadian film distribution sector results in a net benefit to
Canada. Support for national training provides $1.3 million annually
to film and television training initiatives.
Official Agencies
The National Film Board of Canada (NFB), created
in 1939, is a public agency that produces and distributes films
and other audiovisual works which reflect Canada to Canadians
and the rest of the world. The National Film Board aims to encourage
the development of the next generation of filmmakers by providing
talented young people with the means of completing their films
and thereby gaining recognition in the film industry. Support
is provided through the English Program's Filmmaker Assistance
Program (FAP) and the French Program's Aide au cinéma indépendant
(ACIC). These films are characterized by their experimental and
innovative form or content, and would possibly never have been
produced without the NFB's support. Assistance includes equipment
loans and technical and professional services directly related
to the production of a film.
The Republic of Ireland
Section 481 of the Taxes Consolidation Act, 1997
(Formally section 35 Finance Act: see below) provides a fiscal
incentive to taxpayers to invest in film production. Because 80%
of the amount invested can be written off for tax purposes, the
investor looks for a return on the net cost rather than on the
full amount invested. This usually results in a contribution of
up to 12% to the budget.
The Section 481 investment scheme will operate until
end 2004 and is only available for the production spend in Ireland.
A minimum of 10% of the work on the production of the film must
be carried out in the State. Individuals may invest up to €31,750
annually, 80% of which can be written off for tax purposes. The
net cost, at current tax rates, is 66%. In simple terms, the Irish
Government underwrites 34% of the individual's investment. Companies
can invest up to €10,160,000 annually, but not more than
€3,810,000 in any production. Any excess over €3,810,000
must be invested in film productions with a maximum budget of
€5,080,000. The net cost to a company is some 84% of the
amount invested at present.
The amounts that can be raised in this way vary by
project size:
- Up to 66% for films costing
€5,080,000 or less
- Up to 55% for films costing in excess of €6,350,000
million with sliding scale adjustment of between 55% and 66% for
films costing between €5,080,000 and €6,350,000.
- Up to €10,480,000 maximum for films with
a budget over €19,050,000.
- A typical structure would be as follows:
- An Irish production company is established to
make one film only.
- It is commissioned to produce a film for an agreed
fee, payable on delivery and acceptance, with a further entitlement
to either a net profit or adjusted gross position. For example
a pre-sale fee of about 82% of the investor funds raised together
with an advance of the remainder of the budget is not unusual.
The structure can also provide a cash-flow benefit to the producer.
- Example: A film is to be made at a budget of
€4 million. Section 481 funds of 66% may be raised (i.e.
€2.64m). A pre-sale agreement may be put in place with a
distributor/broadcaster for 82% of the Section 481 funds raised.
This amount is payable on delivery and acceptance of the film.
The distributor/broadcaster will fund the non-Section 481 element
of the budget (i.e. €1.36 million).
The Department of Arts, Sport and Tourism is the
certifying body for Section 481 tax relief. The Irish production
company can only raise investor funds when it has been certified
by the Minister for Arts, Sport and Tourism. The Minister issues
a certificate when he is satisfied that the production of the
film will benefit the national economy and the Irish film industry.
Section 195, Taxes Consolidation Act, 1997 empowers
Revenue to make a determination that certain artistic works are
original and creative works generally recognised as having cultural
or artistic merit. Accordingly, earnings derived from such works
are exempt from income tax from the year in which the claim is
made. It can apply to writers, including scriptwriters, visual
artists and composers. Individuals may locate in Ireland and
enjoy tax-free income from their works under this scheme, known
as 'artists' exemption'. Claimants for Artists Exemption must
be resident, or ordinarily resident and domiciled, in the State
and not resident elsewhere. However, Revenue are prepared to give
advance opinions regarding the exemption to claimants resident
abroad. If these claimants receive a favourable advance opinion,
they are given a formal determination in respect of Artists Exemption
on taking up residence in the State. Guidelines have been drawn
up by the Arts Council and the Minister for Arts, Heritage, Gaeltacht
and the Islands, with the consent of the Minister for Finance,
for determining for the purposes of Section 195 whether a work
is 'an original and creative work and whether it has, or is generally
recognised as having, cultural or artistic merit'. Revenue may,
having regard to the Guidelines, consult with a person or body
of persons which may be of assistance to them in reaching decisions
in relation to Artists Exemption.
Determinations can be made in respect of artistic
works in the following categories:
(a) a book or other writing;
(b) a play;
(c) a musical composition;
(d) a painting or other like picture, and
(e) a sculpture.
Tax Agreements
Irelands EU approved 10% tax rate has proved an attractive
stimulus to foreign investment in Ireland for many years. It applies
to manufacturing companies (including film production companies),
international finance services companies in the Custom House Docks
Area of Dublin (including film finance companies) and companies,
which trade from Shannon Free Zone (including film distribution
and licensing companies). The 10% rate applies to income after
deduction of trading expenses, not withholding tax on dividends
paid by Irish companies.
Development Loans for Feature Length Fiction Films
are offered up to a maximum of €35,000 at any one time and
€70,000 cumulatively for any one project and are repayable
on the first day of principle photography. Production Loans for
Feature Length Fiction Films are offered on a basis of repayable
loan/equity participation of a proportion of the total budget.
Funding for short films is also available under the following
schemes:
- Short Cuts
- Oscailt
- Frameworks
- Irish Flash
- Short Shorts
New Zealand
Private investors in New Zealand films may wish to
take advantage of special tax incentives available in the Income
Tax Act 1994. To qualify for these tax incentives the film in
question must first be certified as a New Zealand Film. The Film
Commission is authorised to certify a film or television programme
as a New Zealand Film provided it contains significant New Zealand
content as set out in Section 18 of the New Zealand Film Commission
Act 1978. Certification allows a film to qualify for a one-year
tax write-off in the year in which the film reaches double-head
fine-cut under the New Zealand Income Tax Act.
Support
A high percentage of New Zealand-produced feature
films and television programmes are made with the help of government
funding. In the case of feature films, government funding is made
available through the New Zealand Film Commission and the newly
established New Zealand Film Fund. With a total annual investment
budget of around NZ$8 million, the New Zealand Film Commission
generally allocates funding across a maximum of five feature films
in any one year. These films usually fall within a budget range
of NZ$1 million to NZ$5 million.
NZ Film Commission provides financial assistance
for New Zealand feature film projects and New Zealand filmmakers,
by way of loan or equity financing. NZFC commit up to 8% of our
annual budget to feature film development financing, and up to
60% to feature film production financing. Development decisions
are made by either the senior staff group (up to $15,000 per project)
or the Development Committee (up to $75,000 cumulative per projects).
The Film Commission Board makes decisions involving financing
beyond $75,000 for either advanced project development or for
production financing.
The Film Commission is restricted in the application
of its funding by the terms of its implementing legislation which
require that funding be made available only to films containing
significant New Zealand content. The Film Commission will therefore
only accept funding applications from New Zealand producers. The
Film Commission is authorised to provide both provisional and
final approval as an official co-production for film and television
projects, provided the project meets the required eligibility
criteria.
The New Zealand Film Fund
The New Zealand Government has contributed $22 million
(inclusive of Goods and Services Tax) toward the establishment
of a new feature film production fund. An independent charitable
trust has been set up to administer this fund.
The aim of the Film Fund is to:
- Support the development and
growth of a sustainable New Zealand film industry.
- Assist the development of the talent base of
experienced successful New Zealand film-makers by enabling them
to obtain international exposure and experience.
- Support the production of films of a larger scale
that those which can generally be afforded by the New Zealand
Film Commission.
- Enable experienced New Zealand film-makers to
make more complex and textured films which speak with a New Zealand
voice.
Funding Criteria
To receive funding from the Film Fund, projects must
be feature films with significant New Zealand content to be made
by New Zealand film-makers who have already made one feature film.
Funding will be made available only for one production. Note that
the term 'film-maker' implies a New Zealand producer and/or director.
To receive Film Fund Finance a project must have:
- Significant New Zealand content.
- At least two positive independent script assessments.
- A reputable theatrical sales agent attached.
- Reasonable evidence of market potential including
the New Zealand market.
In addition to these criteria, there are a number
of operating guidelines including the requirement that around
40% of the budget must come from off-shore sources and that the
total budgets should normally be around $NZ5 million. However,
these guidelines are written in general terms and do allow for
some flexibility.
Co-production Agreements
For both financial and creative reasons, an increasing
number of feature film projects worldwide are being developed
as international co-productions. The New Zealand Film Commission
supports this trend, acknowledging that an official co-production
structure sometimes may be the only way for a producer to realise
a project. If a co-production is appropriately structured, it
will be eligible for certification as a New Zealand film. Furthermore,
it may be able to attract production funding from the New Zealand
Film Commission.
New Zealand has entered a number of bilateral co-production
agreements. To date, agreements have been signed with Australia,
the United Kingdom, France, Canada and Italy and the New Zealand
Film Commission is in the process of negotiating an agreement
with Germany. The co-production agreements state that co-productions
made under the terms of the agreement (and certified as such by
the New Zealand Film Commission) will be entitled to all the benefits
accorded to national productions in New Zealand. This includes
the ability to access New Zealand Film Commission funding, and
to receive the benefits of any tax incentives.
There are two types of co-production — official
and un-official:
Official;
An official co-production is subject to the various
Government to Government treaties that exist. New Zealand currently
has treaties with UK, Canada, France, Italy and Australia. The
regulatory authority is the New Zealand Film Commission. The minimum
participation is 20/80 or 30/70 funding/creative split in an official
co-production. It is extremely unlikely to find funding within
New Zealand under the treaty for a project that did not have either
a New Zealand director or writer or is totally led from overseas.
For an official co-production it would be necessary to find a
production partner within New Zealand who has experience working
with overseas producers.
Un-official;
Non-New Zealand producers are unlikely to find funding
in this country for a production originated elsewhere. Producers
who want only to utilise crew, locations and so on should contact
a local production company with experience working with international
producers or partners.
Incentives to film in New Zealand
New Zealand government policy has created an incentive
through an open, deregulated economy. This provides overseas investors
with a stable, competitive, transparent, low cost business environment
in which to invest for the long term.
There are a number of other financial benefits:
- It has been estimated that
NZ production costs are 20% cheaper than Australia and 32% cheaper
than Canada, after any tax incentives or rebate schemes in those
territories are factored in. The flexible, deregulated and highly
creative New Zealand production environment makes your dollar
go further.
- The exchange rate effectively doubles a project's
budget. One NZ dollar has the same purchasing power as one US
dollar
- New Zealand is a non-SAG country thus relieving
producers of industry union issues.
- New Zealand has no compulsory fringe obligations
for its crews or actors. Most NZ crew are self-employed and take
care of their own taxes and insurances.
- Expenditure incurred in producing a film classified
as a New Zealand film by the New Zealand Film Commission is generally
fully deductible in the year in which the film is completed. Expenditure
incurred in producing or acquiring other films is generally deductible
over two years commencing from the year in which the film is completed.
However, these deductions are subject to a number of additional
requirements. For example, expenditure that has been funded out
of a non-recourse loan or that is subject to a deferred payment
arrangement, is generally only deductible in the year in which
the relevant payment is made. The New Zealand Government is also
considering introducing 'at-risk' rules, which would limit the
tax deductions available to investors to the amount of money they
have at risk in the film.
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