Division 376 of the Income Tax Assessment Act provides for refundable tax offsets, designed to support and develop the Australian screen media industry by providing concessional tax treatment for Australian production expenditure. There are three offsets available – the producer offset, the location offset, and the post, digital and visual effects (PDV) offset – but a producer may only claim one of the three in its income tax return. Importantly, the offsets are only available to companies, not individuals.
The Administrative Appeals Tribunal handed down an important decision on the producer offset on 18 September: Fragmentary Pty Ltd and Screen Australia [2024] AATA 3316. This is the first published decision to consider the threshold requirement that the company claiming the offset be responsible for all activities involved in making the film.
Simpsons acted for Screen Australia, whose decision on the applicant’s eligibility for the producer offset was affirmed by the AAT.
The producer offset is available to a company for the making of an Australian film when certain conditions are met. One of those conditions is that Screen Australia must have issued a certificate to the producer, upon being satisfied that the producer and the film meet a number of mandatory eligibility criteria.
Fragmentary Pty Ltd applied to Screen Australia for a final certificate for the producer offset. Among other reasons, Screen Australia considered that Fragmentary had not “carried out, or made the arrangements for the carrying out of, all the activities that were necessary for the making of the film” (a mandatory eligibility requirement under s 376-65(1)(a)) and so determined that a final certificate could not be issued.
In considering the eligibility criteria under s 376-65(1)(a), the Tribunal member stated that the “making of a film” commences with pre-production development activities such as storyboarding, scriptwriting and casting actors, encompasses the shooting or production of the film, and extends to post-production activities such as editing the film (but does not include the anterior step of developing the proposal for undertaking those activities).
The Tribunal member examined the timeline and the relevant steps in the making of the film in question. Critically, many of the steps were arranged and carried out by an individual (the film’s writer, director, producer, and key cast member) prior to Fragmentary’s registration as a company. This included scripting, scheduling, arranging actors and camera equipment for filming, principal photography, and early editing.
The Tribunal recognised that pre-existing materials (such as scripts) may be licensed to be incorporated into a film, as is common practice. This would not in and of itself prevent the issue of a producer offset certificate. However, the work completed prior to Fragmentary’s incorporation in this case went far beyond this and was clearly part of the ‘making of the film’, and the Tribunal therefore determined that Fragmentary did not meet the eligibility criteria in s 376-65(1)(a).
It is important for film producers and financiers to carefully consider eligibility for tax offsets, and to do so before production is scheduled to commence. Re-characterisations of events and commercial dealings after the fact are unlikely to be accepted.
The decision is available here: Fragmentary Pty Ltd and Screen Australia [2024] AATA 3316.
By Anna Spies