Federal Budget: Screen Aus funding increased by $13m, Offsets overhauled

10 May, 2011 by Brendan Swift

The Labor Government has boosted Screen Australia’s funding by $13 million to support the documentary sector over the next four years and overhauled the Offset rebate schemes to improve efficiency as part of the 2011 Budget.

The changes include halving the minimum Producer Offset expenditure threshold to $500,000 for feature films and single-episode dramas, doubling the post, digital and visual (PDV) effects rebate, and replacing the Producer Offset for low-budget documentaries with a Producer Equity payment administered by Screen Australia.

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Other changes include converting the 65 episode cap to 65 commercial hours for television, exempting documentaries from the 20 per cent ‘above-the-line’ cap, and allowing a broader range of expenses to count as qualifying Australian production expenditure (QAPE).

However, the overall $43 million boost to the industry (excluding the increase in Screen Australia funding) will be more than offset by the government’s decision to exclude the goods and services tax (GST) from QAPE and doubling the minimum expenditure thresholds for documentaries to $500,000, which will save the government $48 million over the next four years.

Screen Australia had previously recommended that GST not be included in QAPE because it was administratively difficult to calculate and allowed producers to claim some GST expenditure even if it was refunded by the ATO.

The raft of changes – which largely follow Screen Australia’s recommendations to the recent Review of the Australian Independent Screen Production Sector – is also a tacit rejection of the Screen Producers Association of Australia’s competing proposal for a Producer-Distributor Film Fund.

Screen Australia had been lobbying for a substantially larger increase to its direct funding, largely to support more mid-budget feature films. It will instead receive an extra $2.5 million in 2011-12 and $3.5 million for each of the next three financial years to support low-budget documentaries (see below for more information).

SPAA executive director Geoff Brown released a statement welcoming the government's response to industry concerns. "We were not expecting to see much in the way of additional direct funding in this tough budget so what's been achieved is a great result," he said.

South Australian Film Corporation chairman Cheryl Bart said the decision to halve the Offset expenditure threshold was a serious breakthrough and the PDV changes would help SA-based post-production companies such as RSP.

"These measures are perfectly timed for the South Australian Film Corporation, not to mention the South Australian industry, primed as it is to move into new state-of-the-art Adelaide Studios," she said in a statement.

Screen Australia’s chairman Glen Boreham said the screen sector should take some comfort from the Budget measures, which are designed to invest more money on screen rather than on administration.

“In further recognition of the need for informed debate and evidence-based public policy settings the Government has provided Screen Australia with funds to re-instate the Australian Bureau of Statistics (ABS) screen industry survey,” Boreham said in a statement.

It will be the first time the survey, which measures income, expenditure, profit margin and employment for the entire Australian audiovisual industry, has been conducted since 2006-07.

Screen Australia plans to also explain the budget measures in forums in Melbourne on May 18 and Sydney on May 20.

It has also released the following detailed information about the Budget changes:

1. Direct support for low-budget documentaries

  • An ‘overall’ QAPE threshold for documentary projects of $500,000 – whether for series, seasons of series or single-episodes – will be introduced as part of Producer Offset eligibility. The QAPE threshold of $250,000 per hour will remain.
  • Documentaries which do not meet the new threshold will be eligible for a Producer Equity payment equal to 20% of the budget, in lieu of receiving the Offset.
  • Screen Australia will administer the Producer Equity program, which will provide a simple secure means of support for lower-budget projects.
  • Because Producer Equity would replace the Offset, projects would need to meet a $250,000 per hour budget threshold, have a duration (or episode duration) of a commercial half-hour or more, have significant Australian content, and meet eligibility requirements in Screen Australia’s terms of trade.
  • The Producer Equity payment will be cashflowed through the production, reducing finance costs for producers. For projects with Screen Australia funding, this means the payment can be incorporated into the normal cashflow schedule; for projects without Screen Australia funding, 50% would be paid on application and 50% on delivery.
  • Screen Australia will receive an additional appropriation of $2–3m p.a. to pay for the program.
  • Documentaries which exceed the $500,000 budget limit will remain eligible for the Producer Offset, subject to the statutory criteria.

2. Lowering QAPE thresholds

  • Currently, feature films and single-episode programs (such as telemovies and direct-to-DVD) must meet or exceed an ‘overall’ QAPE threshold of $1m. Single-episode (nonfeature) programs must also meet a QAPE threshold of $800,000 per hour (meaning that a 90 minute telemovie must meet an effective QAPE threshold of $1.2m).
  • These requirements have the unintended effect of artificially inflating budgets and discouraging entrepreneurial projects at a time when production of innovative Australian drama for multiple platforms should be encouraged.
  • Both features and single-episode drama projects will now only need to meet a minimum QAPE threshold of $500,000 to qualify for the Offset, with no average hourly threshold.
  • This will encourage the production of films at more efficient budget levels.

3. QAPE Reform

Generally speaking, a number of expenses that are currently excluded from QAPE will now be able to be claimed. The intent is for as much of a project’s budget as possible to be QAPE, making the Offset more certain and more secure and easier to calculate and apply for.

Where the relevant services are provided in Australia, the following costs may now be considered QAPE:

  • All standard production insurances and Completion Guarantees
  • Costs associated with financing, such as legal fees associated with financing (including preparation of the PIA), production and investor audit fees, company fees set-up and ASIC fees, and medical fees for insurance purposes (actual financing costs, such as interest and application costs will still be excluded from QAPE)
  • Additional marketing costs, such as unit publicists and study guides may be considered QAPE
  • Some previously non-QAPE costs, such as censorship and classification costs, Dolby licenses and film vaults.
  • Carbon offsets

As is currently the case, all QAPE must be incurred prior to the end of the financial year in which the film is completed.

Finally, QAPE will now be calculated on a GST-exclusive basis, correcting an anomaly which had provided accidental benefits for producers. Under current treatment, producers could claim all GST paid as QAPE – even if the GST was subsequently refunded by the ATO. Removing this un-intended benefit will, in fact, reduce the compliance costs for the Offset at final certificate stage as the calculation of the GST paid on QAPE items was a difficult process.

4. Removal of anomalous rules and inefficiencies

A number of aspects of the Producer Offset are in practice inefficient or anomalous in relation to particular kinds of projects. The changes will address these issues:

  • Currently, projects must convert any expenditure in a foreign currency into Australian dollars using two artificial exchange rates – both an average exchange rate and the rate at the commencement of principal photography. Under the changed rules, for projects claiming QAPE of $15m or less, any expenditure in a foreign currency will be converted to Australian dollars utilising the actual exchange rate that applied when the expenditure was incurred.
  • Non-feature documentaries are to be exempt from the 20% above the line cap, recognising that the rule has a disproportionate impact in the case of documentaries.
  • The 65-episode cap on Offset support will be converted to a cap on 65 commercial hours, removing the current inequitable treatment of shorter-form series and seasons of series, particularly animated children series of quarter-hour episodes.
  • Currently short-form animated drama is an eligible format, but short-form animated documentary is not. This inconsistency will be removed, meaning that all short-form animated projects will now be eligible (providing other eligibility criteria are met).

5. Re-instatement of ABS Survey

In further recognition of the need for informed debate and evidence-based public policy settings the Government has provided Screen Australia with funds to re-instate the Australian Bureau of Statistics (ABS) screen industry survey of the screen production and post-production industry.

The survey is a crucial source of information about key business indicators such as income, expenditure, profit margin and employment for the entire Australian audiovisual industry and has not been conducted since 2006/07 (prior to the introduction of the Government’ Australian Screen Media Support Package in 2007/08).

As the national statistical agency, the ABS is in a unique position to collect this data.
 

 

 

 

 

 

 

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