QPIX: Makeing Filmmakers - Build the Film and Televiosion Industry, developing and training filmmakers

Feature drama producers are delighted. Directors have been advised to jog. But documentary makers have some concerns. THE HARD COPY analyses the Federal Government’s new production rebate.

On 1 July this year, Baz Luhrmann will be $40 million richer when he submits his claim for a 40 per cent rebate on the qualifying Australian production expenditure on his new feature AUSTRALIA, starring Nicole Kidman and Hugh Jackman. As part of the Australian Government’s $282.9 million film package announced in this year’s Budget, a producer’s rebate will be introduced, which is designed to create a new tax incentive to boost support for Australian film and television productions. This followed the recent Review of Australian Government Film Funding Support.

The rebate will be 40 percent for feature film and 20 percent for television drama and documentary. As well, the Federal Government has announced that it will increase the tax offset for foreign films, now known as the location rebate (up from 12.5 to 15 percent). There are no caps for the rebates, which will replace the 10BA tax incentive scheme.

The Screen Producers Association of Australia (SPAA) is concerned that without 10BA co-investments the rebate may only deliver marginal gains to the producer.

‘All the upside from the rebate will be traded off to attract investors who will not be able to get the traditional tax break on 10BA. They will be asking for much more. It’s likely that the high net worth individual (the conventional 10BA investor) will depart the scene to be replaced by equity investors expecting a capital guarantee on their investment and returns of 15 percent plus regardless of the film’s performance,’ said SPAA executive director, Geoff Brown.

Nothing yet is written in stone. While the legislation governing the rebate is due to go before Federal Parliament in its Spring session (August or September), it is an election year so SPAA and other lobby groups are hopeful that the legislation will be fine tuned.

At the time THE HARD COPY went to press, a number of details had yet to be determined, including the definition of an ‘Australian production company’, what constitutes a ‘Qualifying

Australian film’ and what can be counted as ‘Qualifying Australian Production Expenditure’ (QAPE).

The government also announced that, from 1 July 2008, Film Australia (FA) would be merged with the Australian Film Commission (AFC) and Film Finance Corporation (FFC) to form a single new agency, at this stage called the Australian Screen Authority. As well as providing direct subsidies, it will act as the certifying authority for the rebate. In the meantime, the FFC will administer the rebate. FFC CEO Brian Rosen says it will be ready to start issuing provisional rebate certificates on 1 July 2007, but only to those who have raised 100 percent of their budget and have a distributor on board.

‘The rebate is a very different beast to 10BA’, says Rosen. ‘10BA was a tax concession for investors in Australian films. The rebate is direct money from government to a film so there is a subtle difference so therefore different rules need to apply to it. The rebate will be a points system whereby it will be very clear where you cross the threshold of “absolutely qualifying”. But there’s going to be an area where you don’t quite have the points but there’s discretion from the Board. And there’s going to be an area where if you don’t reach a certain amount of points, there’s no point applying because you’re just not going to get the certificate.

‘The idea of the qualifying test, if I might bring a bit of humour to it, is the old thing of “it looks like a duck, it quacks like a duck, but is it a duck?” What we need to safeguard is whether the rebate goes to what would be considered an Australian film rather than what is an overseas film dressing itself up to get the 40 percent rebate instead of 15 percent. What we’re calling it is Qualifying Australian Content, for short QAC.’

Queensland-based feature producer Chris Brown, who is currently producing the $20 million Australian film DAYBREAKERS that stars Ethan Hawke, says he is ‘over the moon about the rebate, as anybody with any common sense would be’.

‘Brian Rosen and Chris Fitchett have done a great job shepherding this through. We’re very, very lucky. I make commercial, market-driven films and all six on my slate will take advantage of the rebate.’

Brown says he has structured each of the six films on his slate on the basis that he’d get 35 percent, so he is very happy 40 percent made it into the Budget.

Prior to the Budget announcement, there had been speculation that the rebate for feature film production would be 40 percent but that the rebate for television drama and documentary would be 30 percent.

Who will be eligible?

‘The 30 percent was there for high-end television and documentaries,’ says Rosen. ‘That did not happen. It’s 20 percent across the board for all television and documentaries.’
Many producers, including documentary makers Larry Zetlin and Cathy Henkel who both have 90-minute documentaries currently in production, are keen for clarification on how a feature will be defined.

‘Everything should be 40 percent,’ argues Zetlin, from Gulliver Media, ‘Otherwise the system could be vulnerable to rorting.

‘The thresholds are rortable too – they will encourage budget creep. I don’t think there should be thresholds. It should be about the length of the film.’

But Rosen already seems pretty clear on what will constitute a feature film.

‘A feature film is a film that gets a cinema release. It is not a film made for television that gets a small theatrical release at a festival or a week’s run at the Dendy. You cannot be MOLLY AND MOBARAK. You have to come in and be like HUNT ANGELS, which was always intended to be theatrical, and it was financed that way too. The TV side of HUNT ANGELS won’t happen for two years.’

Overall, the Screen Producers Association of Australia (SPAA) says ‘the producer rebate is one of the boldest and most significant changes to the financing of Australian productions in a very long time’.

SPAA policy advisor Owen Johnston has compiled a list of comments and queries from SPAA members throughout Australia and, from this, has written a recommendation paper that will be submitted to the FFC and the Department of Communications, IT and the Arts (DCITA).

He says SPAA’s two key concerns centre on whether the rebate will apply only to independent producers (or whether television broadcasters will also be eligible for a 20 percent rebate) and, secondly, whether the rebate is going to work in documentary.

‘The rebate provides a substantial opportunity for producers to retain significant equity in their productions and build stable and sustainable production companies, both important for the long term growth of the film industry,’ said Arts Minister Senator Brandis following delivery of the Budget.

SPAA argues that, if the Federal Government wants to achieve its stated aims - that is, to create a robust, independent, competitive film and television industry and an increase in private investment in film and television production – then the rebate should apply only to genuinely independent production companies. SPAA wants TV broadcasters and the PAY TV networks specifically excluded from the rebate because they fear that, if they’re not, they will use ‘subsidiary mechanisms’ (in other words, companies set up that have exclusive output deals with one network or broadcaster solely for the purposes of claiming the rebate) and stop commissioning independent productions.

‘If TV networks are eligible for the rebate it will just mean the most profitable television networks in the world become even more
profitable,’ says Johnston.

FFC CEO Brian Rosen disagrees that broadcasters should be specifically excluded in the legislation.

‘To me, everybody looks in the wrong direction on that one. You cannot stop them getting it. The rebate is available to everyone. The government’s answer would be as long as it’s Australian drama going onto Australian television, why would you want to stop someone from getting it. I understand the whole raison d’etre that we want to have a strong independent sector but I don’t see how you can totally deny a broadcaster from accessing it because they can circumvent [the regulations] anyway.

‘The intention of the rebate is to create more drama and documentaries for Australian and international audiences. As to whether that’s Fox Distribution here in Australia making something, or Channel Seven making something, in the end the public are getting more drama. The rebate is sitting there to do that. It doesn’t do that if you say it is only there for independent producers. It is there to stimulate an industry into making more drama. It’s important to remember that producers and directors make up only about five percent of the industry. The other 95 percent are actors and crew and post-production facilities that all benefit from this as well. It’s there to create businesses for filmmakers, absolutely, but to turn around and say [independent producers] are the only ones who can get it, I think you would end up in a court of law. You’re not going to win that one, because that’s a restriction of trade.’

Rosen believes independent producers are overly concerned about the broadcasters getting access to the rebate. ‘They can do it already but the only one that is doing in-house production is Seven at the moment. I am sure Geoff Brown and SPAA will viciously argue that with me but you can bring in as many rules and regulations as you want and they can totally circumvent it anyway. There’s nothing you can do about it.’

He believes SPAA would be better off lobbying for new terms of trade with broadcasters that, like in the UK, specify that a certain amount of production has to be sourced from the independent sector.

Doco misses out

Rosen suggests that the definition of an Australian production company and of QAPE could be based on the definitions of both that already exists in the location rebate. This would mean expenditure including finance charges, completion guarantees, certain insurances and flights leaving Australia would be
excluded.

‘I suspect those things already sitting there will be reflected in the producer rebate,’ says Rosen. ‘But I only suspect that – I am not saying it will be the case.’

It is these exclusions that particularly concern documentary makers, says Johnston, along with the ‘very, very high’ threshold of $500,000 (which would automatically exclude the vast majority of documentaries made in Australia today) and capping above-the-line fees at 20 percent (since most documentaries are made with multiple investors and hence multiple executive producers and co-producers). SPAA’s documentary members are also concerned that development expenditure might be excluded from QAPE.

‘Documentary makers can shoot a lot of their material offshore, and flights, hotel, accommodation and research fees incurred overseas comprise a significant amount of expenditure. We don’t know why the threshold was set so low, but it may be have been an oversight,’ said Johnston.

Rosen told a group of documentary makers who assembled on 6 June in Sydney that any changes to the documentary threshold will have to go back to Cabinet.

However, SPAA is concerned that going back to Cabinet will delay the legislation.

‘We don’t want to delay the legislation,’ says Johnston. ‘So what we’re asking the Government to do is to make a commitment to reviewing the documentary threshold in 12 months time if it appears not to be working.’

Richard Harris, who becomes CEO of the South Australian Film Corporation in mid-July, says that ‘until we see the colour of the legislation, it’s hard to know exactly how it will work but it is likely that state agencies will need to play a role in cash flowing the rebate.’

On 8 June, the Pacific Film and Television Commission (PFTC) announced a 33 percent increase to its Revolving Film Finance Fund, a cashflow facility available to film and television productions spending at least half of their below-the-line production budgets in Queensland. The maximum amount available is $4 million or 50 percent of the budget, whichever is greater.
Wearing his old hat, as outgoing executive director of the Australian Directors Guild (ADG, formerly ASDA), Harris says in many ways the rebate puts ‘creative people in a position of strength’.

‘A lot of Australian directors will be taken to lunch by major international studies to scope out what they’ve got. Directors will need to do a lot of jogging to work off their long lunches. It’s very interesting times.’

ADG hosted a film industry post-budget forum in late May in Sydney and in mid-June in Melbourne. Many there, including Harris, also expressed disappointment that there appears to be no allowance for ‘commercial docos’.

‘It looks like most documentaries are going to be stuck with the funding agency door,’ said Harris.

Read how the merger will impact on the activities of the three federal film agencies over the coming 12 months.