Senator the Hon. George Brandis S.C.

Minister for the Arts and Sport

Embargo: Noon 3 August 2007

The Minister for Arts and Sport, Senator George Brandis, today released further details of some important enhancements to the Government’s new $282.9 million Australian Screen Production Incentive package.

The package, announced in the Australian Government’s 2007–08 Budget, provides generous incentives for domestic and offshore production to strengthen Australia’s film industry, and includes:

• a Producer Offset to encourage Australian film and television productions;
• a Location Offset to attract large budget productions from offshore; and
• an offset on Post-production Digital and Visual Effects (PDV) production work done in Australia as part of large budget productions, no matter where the project is shot.

“Since these measures were announced the Government has engaged in extensive industry consultations to ensure the film package is appropriately targeted and will effectively stimulate increased production as intended,” Senator Brandis said.

“Industry has responded very favourably to the package—particularly to the Producer and Location Offsets. There is a positive feeling within the industry that the Government’s new domestic and offshore incentives will be a boon for the local film industry.

“Through the consultation process industry has raised a number of practical issues about how the Producer and Location Offsets will operate, so the Government has agreed to make a number of changes to them to achieve the best possible outcomes for the industry.”

The Minister has announced today that changes to the Producer Offset will include:

• removal of the mandatory requirement that a provisional certificate must be obtained before a producer can claim qualifying production expenditure
• allowing expenditure outside Australia to qualify for the offset if the location and related overseas activity is for purposes connected with the subject matter of the film
• reduction of the minimum expenditure thresholds for shorter television series and documentaries; and
• confirmation of transitional arrangements for film and television programs already in production when the offset came into effect on 1 July 2007.

“The removal of the requirement for a mandatory provisional certificate will facilitate producers claiming legitimate production expenditures, such as development expenses like script writing and scouting locations, under the Producer Offset. It is expected many producers will still want to obtain provisional certificates in order to provide investors with some confidence that the film will qualify for the Offset , but they can now choose the point in the production cycle which best suits them.

“By allowing overseas expenditure on Australian films to qualify for the Producer Offset, the Government recognises that some documentaries, iconic films on Australian events overseas and co-productions may need to shoot outside Australia. A film on Gallipoli, for example, may want to film on location in Turkey. The Government does not want to disadvantage such productions where they are employing Australian cast and crew to undertake the shoot.

“Based on extensive advice from industry, the thresholds to access the Production Rebate for series have been reduced significantly. The Government’s reduction of the minimum expenditure thresholds for documentaries and television series will reflect what industry has advised are the usual production costs and episode and series durations. I am confident the adjustments will provide Australian producers with a great incentive to make high quality documentaries and TV series.

“Finally, for Australian productions which were already underway on 1 July 2007 when the Producer Offset came into effect, producers can claim all qualifying Australian production expenditure on goods acquired and services provided on or after 1 July 2007. This will apply regardless of when the contractual arrangements were entered into or when payment was made and irrespective of whether or not a provisional certificate has been issued.”

The Minister said this new measure would “simplify calculation of which expenditures are claimable by allowing production companies to make reasonable apportionment of expenditure incurred during the transitional period.”

The Minister also announced that the new Location Offset would be available for large budget international productions starting principal photography or production of the visual image on or after 8 May 2007. This change means productions which commenced principal photography immediately following the budget announcement will not be disadvantaged. It will send a positive message to foreign producers to encourage them to locate future productions in Australia.

“The enhancements announced today will further increase the effectiveness of the Producer and Location Offsets. They ensure our new incentives are effective in encouraging local and foreign producers to make high quality film and television productions in Australia.”

“Industry stakeholders have also emphasised the need for certainty about the way in which the new offsets will operate. The best way to do that is to move quickly to enact the incentives in legislation,” Senator Brandis said.

“The Government intends to introduce legislation enacting the Australian Screen Production Incentive during the 2007 Spring sittings of the Australian Parliament with a view to passing the legislation as soon as possible.”

Other than the changes announced in this media release and its accompanying fact sheet, arrangements are as set out in the Budget announcements. For more information visit

www.dcita.gov.au/arts_culture/film

Attached is a copy of a letter sent to key stakeholders on 2 August 2007 setting out details of the enhancements.

Media contact: Travis Bell 0448 950 248

3 August 2007

82/07

To film industry stakeholders from Senator George Brandis

I am writing to advise you of a number of significant enhancements to the Australian Screen Production Incentive, which was announced by the Australian Government in the 2007-08 Budget. In particular, these concern the application of the qualifying Australian production expenditure (QAPE) test for the purposes of the Incentive.

Since the announcement of the Incentive, I have had the opportunity to meet with and consider submissions from many representatives of the film and television industries regarding its operation. The Government has agreed to many of the policy changes proposed by industry. I believe these changes will enable the Incentive to better meet the needs of all sectors and stimulate greater levels of Australian film and television production into the future. The changes will be reflected in a draft Bill to be made available by the Treasury shortly.

Due to the operation of the Incentive as a package of refundable tax offsets under tax legislation, the three components of the Incentive will be known as the Producer Offset, Location Offset and Post, Digital and Visual Effects (PDV) Offset.

In order to reduce red tape for the sector, and provide greater certainty for producers and investors alike, provisional certificates will not be required as a procedural step to access the Producer Offset. The Offset will be applied against all QAPE regardless of whether, or when, a provisional certificate was issued.

The minimum QAPE thresholds for documentaries and shorter television series will be reduced significantly in view of industry concerns that the levels initially proposed were too high, and did not reflect current practice. For documentaries, the requirement that a production must spend a minimum of $500,000 in QAPE has been reduced. Instead, documentaries with a minimum running time of at least a commercial half hour will be eligible to apply for the offset provided they meet the minimum average threshold of $250,000 QAPE per hour.

For television series, a common definition of “series” will be adopted which encompasses both “long form series” and “mini-series”. Series made up of at least 2 episodes and no more than 65 episodes will be eligible to apply for the Offset provided they meet minimum QAPE thresholds of at least $1 million in total and $500,000 per hour. Episodes of a series must have a minimum running time of at least a commercial half hour.

In respect of productions undertaken overseas, expenditure in a country other than Australia will ordinarily be considered as satisfying the requirements of QAPE for the Producer Offset where the expenditure is incurred for goods and services provided by an Australian resident during principal photography, and where the subject matter of the film reasonably necessitates the use of the overseas shooting location.

With regard to official co-productions undertaken under a treaty or Memorandum of Understanding between the Australian Government and the Government of another country, eligible expenditure made in that other country will count towards meeting the minimum QAPE thresholds. Except as stated in the previous paragraph, this expenditure will not be counted for the purposes of quantifying the value of the Offset. This reflects the principal purpose of the Incentive which is to maximise expenditure in Australia for the benefit of the Australian film and television industry.

In respect of productions which are currently underway, the Government has considered the meaning of the word “incurred” as used in the expression “expenditure incurred on or after 1 July 2007” and determined that the word “incurred” will mean services provided or goods acquired on or after 1 July 2007. This is regardless of when the contractual obligation to provide the services was undertaken. This means that in the case of anyfilm in production on 1 July, where contracts have been entered into prior to that date, applicants may make a reasonable apportionment of expenses (for example, crew expenses) for services provided and goods used on or after 1 July 2007. These will be considered eligible for the Producer Offset.

So as not to disadvantage large Budget productions that have located to Australia and commenced principal photography or production of the visual image since the Budget announcement but before 1 July 2007, the Location Offset will now be available to eligible productions which commenced on or after 8 May 2007, that is the date of the Budget announcement.

Not all suggestions made by industry have been adopted by the Government. I would like to address two of these in more detail.

First, a number of industry stakeholders expressed the view that the Producer Offset should only be accessible to independent producers and that broadcasters should not be eligible applicants. The Government does not consider it appropriate to prevent broadcasters, where they are the project’s producer, from accessing the Producer Offset. To do so would have the effect of distorting investment decisions and would be inappropriate given that broadcasters will no longer have the capacity to structure projects around the 10B and 10BA incentives.

The Government, however, would not view favourably evidence that broadcasters or other distributors of a production are structuring arrangements that would simply use the Offset to reduce their own contribution to the cost of a production. While the quantum of the Licence Fee paid for a series is a matter of commercial negotiation between the producer and the broadcaster, it is the Government’s firm intention that the Offset should assist producers by giving them greater ownership in their productions, and improving their ongoing viability. To that end, the Government will monitor the operation of the Producer Offset and may, if appropriate, take measures to ensure the policy objective of increasing the level of high quality domestic film and television production is not undermined.

Second, as part of the policy announcement, the Government agreed to review arrangements that would apply to freight and insurance and the extent to which they are claimable as QAPE. Following those reviews the Government has adopted a more generous approach to freight, which is set out in more detail in the accompanying media release and fact sheet, but has decided not to vary through legislation the treatment of insurance set out in Tax Determination 2006/2.

The Government anticipates that legislation enacting the incentives will be introduced and considered by Parliament during the Spring sittings in August and September 2007.

Yours faithfully
Senator George Brandis
Minister for the Arts and Sport
August 2007