Film and government funding
Issue: Treatment of Large Budget Screen Production Grant payments
Clauses 36, 45 and 63
Submission
(4 – Pieter Holl & Associates Ltd, 53 – Ernst & Young)
The application of standard grant treatment to films receiving Large Budget Screen Production Grant payments should not proceed as this will cause this grant to be less competitive with its Australian equivalent.
Comment
The Large Budget Screen Production Grant (LBSPG) was designed to be a response to Australia’s “location” refundable tax rebate and intentionally adopted the same tax treatment as Australia. The tax base (cost) for a LBSPG film includes the costs that are reimbursed by the LBSPG. This treatment results in artificial tax losses for the special purpose company that makes the film. In some cases these losses are being offset against non-film taxable income (for example, income of a finance company).
Reverting to the standard grant treatment will result in there being no artificial losses. This has the effect of reducing the subsidy from 19.5% to 15% for the particular film studio where the losses can be used. All film studios should receive an equal incentive for making a film in New Zealand.
Tax deductions are not designed to act as an indirect subsidy for particular industries and any subsidies should be explicit. Therefore, it has been decided to bring the treatment of this grant under standard grant treatment.
Recommendation
That the submission be declined.
Issue: Timing of introduction of measures applying to Large Budget Screen Production Grant payments
Clause 2(22)
Submission
(4 – Pieter Holl & Associates Ltd, 53 – Ernst & Young)
The application date of changes to the Large Budget Screen Production Grant payment tax treatment should be deferred so as not to apply to projects that began pre-production or production before this bill was introduced.
Comment
The issue revolves around giving the industry sufficient notice of the change without unnecessarily exposing the revenue base.
At the moment the bill proposes that the amendment apply from 1 April 2009. We note that this is not as helpful as it could be.
Accordingly, while not accepting the submission, we recommend that the application date be changed so the amendment applies when the final application for the grant is made on or after 1 October 2009. This should go some way towards meeting the submitters’ concerns as well as providing a more coherent cut-off for films that do or do not qualify.
Officials have also been made aware of a project that was begun before 1 July 2008 and will not be completed until, at earliest, December 2009. Expenditure for this film should be grandparented and officials therefore also recommend that films that incurred at least $3 million in film-related expenditure by 1 July 2008 should come under the treatment proposed in this bill.
Recommendation
That the application date be changed so the amendment applies when the final application for the grant is made on or after 1 October 2009 except when the project incurred at least $3 million in film-related expenditure by 1 July 2008.
Issue: Deductibility of Screen Production Incentive Fund payments
Clause 69
Submission
(51 – Screen Production and Development Association)
Producers should continue to be allowed to permit deductions for expenditure in the year of completion of the film, rather than over 24 months.
Comment
The Screen Production and Development Association (SPADA) is concerned about inconsistencies between the tax treatment of Screen Production Incentive Fund (SPIF) grants and non-SPIF funded productions. Its argument is that a number of films have until now been government-funded, and have still qualified for the immediate tax write-off upon completion. This is correct, but the quality of the government funding has changed from limited-recourse loan, to an absolute grant with no claw-back.
SPADA is also concerned about how producers will fund their films between the production date and receiving the grant. However, this is a problem with the grant itself, which is exacerbated by the taxation change recommended. Previously, government funding was paid out on a percentage completion basis, whereas the grant is paid out after completion. SPADA is concerned private investors will be discouraged from investing in films by their inability to immediately offset their film tax losses to the same extent, and that producers will be less able to fund other projects because the timing of their tax refund will be pushed out.
Taxation is not designed to be an indirect subsidy to producers and the screen production industry. Any subsidies should be made explicitly.
Recommendation
That the submission be declined.
Issue: Application date for Screen Production Incentive Fund payments
Clause 2(18)
Submission
(51 – Screen Production and Development Association)
The proposed date of implementation of the scheme for deduction of Screen Production Incentive Fund (SPIF) payments should be deferred to the beginning of the 2010–11 tax year, which is 1 April 2010.
Comment
SPIF was implemented on 1 July 2008 and during the period of delay caused by the later enactment of this bill there is uncertainty over how the deduction rules will apply. Given this uncertainty, it would be unfair to those few productions underway to be caught by the new rules. Delaying the implementation date would allow productions currently held up to proceed with certainty over their tax treatment.
Recommendation
That the submission be partially accepted, with a new application date of 1 January 2010, the date suggested to the industry by the Minister of Revenue in August 2008.
Issue: Application date of information sharing and secrecy provisions
Submission
(Matter raised by officials)
The proposed date of application for new information sharing and secrecy provisions between Inland Revenue and the Film Commission should be deferred from 1 July 2008 to the date of enactment of this bill.
Comment
Officials have realised that the dates currently proposed in the bill for application of the new provisions that override standard Inland Revenue secrecy are retrospective. The override is necessary to allow Inland Revenue to verify film expenditure for the Film Commission for the SPIF grant. Officials do not believe it is appropriate for such provisions to have retrospective application and recommend that their application be moved from 1 July 2008 to the date of enactment of this bill.
Recommendation
That the submission be accepted.