The Australian film and television industry is watching the progress of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 with great interest, because — among the potpourri of changes to do with regulating financial advisors and petroleum resource rent tax anti-avoidance measures — it contains a key element to ensuring that Australia remains a competitive destination for offshore productions.

At a federal level, Australia offers three tax incentives which are designed to encourage film and television production in Australia:

  • Producer Offset, which provides a rebate of 40%of a theatrical feature film’s budget (30%in the case of non-features) for those films with significant Australian content;
  • Post, Digital and Visual Effects Offset, which provides a rebate of 30% of a production’s Australian post-production expenditure; and
  • Location Offset, which currently provides a 16.5%rebate on productions that shoot in Australia with qualifying expenditure of more than $15 million.

With a threshold budget of $15 million, the Location Offset primarily attracts large-scale Hollywood productions. Multiple films released in 2024 have taken advantage of the Location Offset, including Anyone But You, The Fall Guy and Kingdom of the Planet of the Apes.

Australia’s 16.5%rebate for offshore productions was initially a point of distinction, but over time other jurisdictions have caught up, by matching (and often exceeding) the rebate offered in Australia. In order to remain competitive, the Morrison Government introduced the Location Incentive in July 2019. This offered a ‘top-up’ of 13.5%to the legislated Location Offset of 16.5%, for a total rebate of 30%. The Location Incentive had $140 million to disburse over four years. It did go some way to making Australia a more competitive destination, but uncertainty over the continued availability of the Location Incentive once the initial allocation was exhausted, and the fact that it was a discretionary grant, meant that it was not a perfect solution.

The Albanese Government announced, as part of its 2023/24 budget, that the Location Offset would be permanently increased to 30% by legislation, for all productions that commenced filming in Australia after 1 July 2023. As a trade-off for the higher rate, the government proposed some further conditions. Most importantly:

  1. the minimum expenditure threshold would be raised from $15 million to $20 million;
  2. a production must satisfy certain training requirements (to equip the next generation of Australian screen workers with the necessary skills); and
  3. that at least one Australian provider must be engaged to deliver post-production services on the production.

Because these changes required amendment to the underlying tax legislation that governs the incentives (being the Income Tax Assessment Act 1997), the changes were not in place by the proposed start date of 1 July 2023. The government has made assurances that the scheme would be backdated, so that any production that had commenced filming after 1 July 2023 would be covered when the legislation was ultimately passed.

This did go some way to assuage a nervous production sector, although film studios and cashflow lenders would nevertheless need to take a commercial view about commencing production or authorising loans in the absence of binding legislation.

The issue has become more acute recently, given that Australia is on the cusp of a new financial year and the legislation still has not been passed by Parliament. It is now almost 12 months since the scheme’s proposed commencement date, and the associated uncertainty is becoming untenable at the budget levels required for the Location Offset. (By way of example, a Hollywood studio film with qualifying expenditure of $100 million, which would therefore be eligible for a Location Offset rebate of $30 million at 30%, would have a budget shortfall of $13.5 million if the regime were to remain at 16.5%.)

The proposed amendments to the Location Offset — which, as noted above, are contained in an omnibus amending bill addressing myriad other issues that are unrelated to the film and television industry — have been agreed to by the House of Representatives but still require approval from the Senate.

The Senate referred the Bill to the Senate Economics Legislation Committee on 27 March 2024, inviting submissions by 26 April 2024. A public hearing on the Location Offset amendments was held on 13 June 2024, with submissions made by Ausfilm and Screen Producers Australia (SPA). In these submissions, both Ausfilm and SPA emphasised the deleterious effect of the uncertainty on Australia’s ability to attract offshore productions. SPA also advocated for the lowering of the eligibility threshold from $20 million back to the original $15 million, as its position was that there were numerous smaller-scale projects between $15 million and $20 million that would become ineligible for the rebate.

The Committee is due to present its report by 20 June 2024. If the Committee recommends that the Bill should be agreed in its current form, there is still the prospect of having the Bill passed into law before the end of the financial year. If, however, there are recommendations that flow from this review that require amendment (which would necessitate the Bill being sent back to the House of Representatives) — or if the government encounters a recalcitrant Senate — then that deadline becomes impossible to meet.

Further complicating matters is the fact that the changes to the Location Offset were announced in tandem with proposed changes to the regulation of streaming services in Australia, to mandate quotas for Australian content. Legislation to introduce such a quota system is far less advanced than changes to the Location Offset, but this is nevertheless the subject of strenuous lobbying from a different corner of the industry. It would not be unreasonable to think that the attention given to this matter is providing a distraction in having the Location Offset changes passed and implement.

The Committee sought an extra day to deliver its report, ultimately doing so on 21 June. The Committee recommended that the Bill be passed in its current form. The Coalition members of the Committee provided a dissenting opinion, highlighting their issues with other aspects of the Bill. The Coalition members suggested splitting the Bill, so that these other provisions could be further considered, with the Location Offset changes therefore being able to be passed as a priority. The Australian Greens members of the Committee also provided a dissenting opinion, noting their disappointment that content quotas have not yet been implemented, and otherwise recommending that the $15 million expenditure threshold should remain

The Bill was not debated in the Senate before the end of the 2023/24 financial year, but it is scheduled to be introduced on Thursday, 4 July. We will provide an update once this occurs.

By Kieren Martin