Bills Digest no. 181 2004–05
Film Licensed Investment Company (Consequential
Provisions) Bill 2005
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Film Licensed Investment Company Bill 2005
Date Introduced: 26 May 2005
House: House of
Representatives
Portfolio: Minister for Communications, Information Technology and
the Arts
Commencement: The Film Licensed Investment Company Bill 2005
will commence on the day the Act receives Royal Assent. Schedule 1
of the Film Licensed Investment Company (Consequential Provisions)
Bill 2005 will commence at the same time as the Film Licensed
Investment Company Bill 2005.
The purpose of the Film Licensed
Investment Company Bill 2005 (FLIC Bill) and the Film Licensed
Investment Company (Consequential Provisions) Bill 2005 (FLIC (CP)
Bill) will be to extend a pilot scheme to promote the production of
certain Australian films by allowing a 100% tax deduction for
taxpayers investing funds in a company licensed to raise capital
under the scheme. In addition, the scheme also aims at making the
Commonwealth s assistance to the Australian film industry
accountable, transparent and quantifiable.
We need Australian films and Australian television
programs to interpret an Australian identity to us and project this
to the world with flow-on benefits to tourism and
business.(1)
In recent years, Australian film productions, as opposed to
international blockbuster productions produced in Australia, had
problems in reaching domestic, let alone international audiences.
In 2004, Australian films accounted for only 1 per cent of the
Australian box office results, the lowest figure since records
started to be kept in 1977.(2) The following graph
illustrates this:
According to the Australian Film Commission (AFC), the years
where Australian films gained at least 10 per cent of the local box
office (and the films responsible) were: (3)
|
1977
|
Caddie, The
Last Wave, Eliza Frazer, The Mango Tree
|
|
1981
|
Gallipoli,
Mad Max 2, Puberty Blues
|
|
1982
|
The Man from
Snowy River, The Year of Living Dangerously
|
|
1986
|
Crocodile
Dundee
|
|
1988
|
Crocodile
Dundee II, The Man from Snowy River II
|
|
1994
|
The
Adventures of Priscilla, Queen of the Desert; Muriel s Wedding
|
Film production is an expensive and relatively foot-loose
business.(4) Countries around the world have realised
that by attracting film and TV productions to their territory,
offering incentives for them to stay on their territory or
nurturing them within their territory, they can reap many benefits.
These include a spending multiplier effect, improved infrastructure
and training, and tourism and national image
spin-offs.(5) Accordingly, countries are increasingly
willing to tailor packages to make film production in their
territory attractive and to forgo short term revenue to reap longer
term rewards. Referring to the funds coming from these mechanisms
as soft money ,(6) Patrick Frater summarises several
funding mechanisms, including:
Tax credits: a system whereby a
state offers a producer a rebate on film production costs spent in
that country. The two most established systems of this type exist
in Luxembourg and Canada. Both Australia and Iceland offer 'tax
offsets' which also fit this category and appear to have taken
their countries' attractions to a new level. Malta also uses it.
The system can be likened to going shopping abroad and claiming
back the value-added tax (VAT) at the airport. The producer needs
to be able to pay out the full cost of production before claiming a
refund. This hurdle can be circumvented by use of specialist banks
that are willing to discount the value of the future claim. Some
countries are also much quicker than others in reimbursing tax
already paid.
Tax allowances: the most
widespread and potentially biggest source of soft money for
film-making. It works by giving a tax incentive either to private
individuals or to companies that invest in production companies or
one-off film productions, sometimes through acquisition. The German
system famously works this way by creating film funds. The
Netherlands' CV system of limited-liability partnerships also fits
this mould, as do France's Soficas. As no film at the project stage
and few film companies have sufficient income to use the tax
allowances, the trick is to turn the allowance into something with
which producers can use to make their films. The UK's
sale-and-leaseback scheme works by selling the entire copyright of
the film to an outside investor who claims the tax rebate. The film
is then leased back to the producer, allowing the investor to cover
their acquisition costs and the producer to get the film
distributed. Alternatively these can be looked at as tax deferral
schemes or simply as interest-free loans from the tax authorities.
There will usually be some kind of criteria determining which films
qualify for tax allowances. Germany, unusually, does not disqualify
foreign productions, but the German tax advantages are only at
their most efficient if all the 'losses' incurred at the production
stage are attributed to the country. The fund also needs to be able
to have some considerable influence on the production.
(7)
In addition to these tax based funding incentives, Frater also
refers to and summarises other funding mechanisms and incentives
such as:
- Loan support this incentive is based on loans made by
government institutions on generous interest or repayment terms
which would not normally be available on the open market. According
to Frater, this kind of incentive is offered to producers in the UK
and Italy.
- Government underwritings and guarantees this kind of incentive
is based on a Government s promise to covers all or some of the
potential losses of productions. These incentives are available in
France. Guarantees have also been issued by the European Investment
Bank.
- Box-office rebates countries offering this incentive have
systems in place which return a proportion of the box-office
proceeds to producers. These incentives are available in France,
Spain and some of the Nordic countries.
- Subsidies an incentive available in form of some kind of
Governmental cash injection into the production of
films.(8)
Finally, some incentives come in the form of cheap or free
facilities, such as entire studios or locations, in return for, for
example, a co-production position in a film. Co-production may also
be achieved under international treaties and conventions such as
European
Convention on Cinematographic Co-production.(9)
The aim of such treaties and conventions is the creation of
multinational film-production environments in which countries
provide financial assistance and become co-producers.
Australia has historically used two of the above mechanisms to
support the production of indigenous Australian film; subsidies and
tax incentives.
The Commonwealth funds a number of agencies that support the
production of new work:
- Most notable is the Australian Film Finance Corporation (AFFC),
a wholly owned Commonwealth company which provides support for
feature films, telemovies, mini-series and documentaries. It
supports a diverse range of culturally relevant material through
equity investment, undertaken in partnership with participants in
the film and television marketplace, including distributors, sales
agents, broadcasters and private investors.(10)
- The Australian Film Commission (AFC), a Federal Government
agency, provides resources, mainly in the form of finance and
information, to people, projects, organisations and
events.(11)
- Film Australia, a Federal Government-owned
company, produces and distributes television documentaries and
educational programs.(12)
- The Special Broadcasting Service Independent, which was
established in 1994, commissions Australian drama and documentaries
from the independent sector for screening on SBS
Television.(13)
- The Commercial Television Production Fund (which no longer
exists) and the Australian Children s Television
Foundation.(14) Both have a role in the creation of
television content. Commonwealth funding in the last 15 years has
totalled slightly in excess of $100 million.(15)
The second film production funding incentives are tax based. The
Australian Government s support in this area currently rests on the
following four pillars:
- incentives based on Division 10BA of the Income Tax
Assessment Act 1936
- incentives based on Division 10B of the Income Tax
Assessment Act 1936
- refundable tax offsets under Division 376 of the Income Tax
Assessment Act 1997
- the Film Licensed Investment Company scheme
Each of the pillars will be discussed in some detail below.
Division 10BA of the Income Tax Assessment Act 1936
(ITAA 1936) aims to encourage private investment in culturally
relevant, high-quality Australian film and television productions
(10BA projects). Investors in 10BA projects can claim an
accelerated tax deduction of 100 per cent in the year the
investment is made. Under section 124ZAG ITAA 1936, the deductible
amount is the capital expenditure incurred by the investor directly
on, or as a contribution towards, the production of the
film.(16) If the amount was contributed towards the
production, the deduction is available only once the money is
expended for the production. To be eligible as a 10BA project, a
film must be:
- made wholly or substantially in Australia or be an official
co-production, and have significant Australian content
- a project eligible for deductions, which includes features,
documentaries, mini-series or telemovies, and
- certified by the Department of Communications, Information
Technology and the Arts (DCITA) as a qualifying Australian film .
However, producers have the option of applying for a
provisional certificate early in the production
process.
If they choose to apply for a provisional certificate, the
producers must apply for a final certificate within six
months of completing the project to secure the investors
deductions. Programs certified under Division 10BA of the ITAA 1936
are also eligible for direct investment from the Australian Film
Finance Corporation.
Where the Division 10BA deduction does not apply, or where a
taxpayer elects the Division not to apply, a two-year write off
concession under Division 10B of the ITAA 1936 remains
available.
Similar to the deductions available under Division 10BA,
investors expending capital on the production or acquisition of
copyright in qualifying Australian films, as certified by
DCITA,(17) are entitled to a tax deduction if the
taxpayer uses the ownership in the copyright for income producing
purposes. It follows that the deduction will be available only once
the film is completed and is generating income, whilst the
deduction under Division 10BA ITAA 1936 is available as soon as the
film is certified by DCITA. Division 10B tax incentives apply to a
greater number of categories than Division 10BA and include feature
films, documentaries, mini-series, series, short dramas, multimedia
formats such as CD-ROMs, plus promotional, variety, educational and
training material as well as large-format programs.
To attract to Australia s shores large budget foot-loose foreign
films, the Australian Government introduced in 2002 a refundable
tax offset for certain Australian film productions. This offset is
available to film production companies within the meaning of
section 376-5 of the ITAA 1997. However, the availability of this
offset is linked to the following financial thresholds:
- the production film company must expend a minimum of $15
million on the production, and
- if the production film company expends between $15 million and
$50 million dollars it must spend a minimum of 70 per cent of the
film s total budget in Australia.
Where the total budget for a film is more than $50 million, no
minimum percentage applies and the tax offset is available
regardless. Film production companies claiming this refundable tax
offset will not be able to access any of the other film related tax
incentives, including the incentives provided under Divisions 10B
or 10BA ITAA 1936, or seek funding from the Film Finance
Corporation.(18)
In 1997, David Gonski recommended in his Review of
Commonwealth Assistance to the Film Industry the establishment
of so called FLICs.(19) These FLICs combine elements
from the existing schemes accordingly, they would be a mid-way form
of investment incentive in that it would have the hallmarks of both
existing schemes:
- like the subsidising body, a FLIC would pick projects to invest
in, but rather than depending upon direct government subsidies, it
would rely on tax concessions offered to investors in the FLIC,
and
- like the tax incentives provided for by Divisions 10BA and 10B
of the ITAA 1936, the FLIC would provide tax concessions for
investors, but instead of providing the incentives in relation to
the investment into a single projects, an investor in a FLIC would
be spreading their risk by effectively investing in several film
projects.
The FLIC scheme was introduced in 1998 as the Film Licensed
Investment Company Bill 1998.(20)
It permitted a 100 per cent tax concession over the financial years
1998/99 and 1999/2000. Investors received deductions for buying
shares in a FLIC which, in turn, invested in qualifying Australian
programs. Two successful FLIC licensees were appointed in April
1999 Content Capital Ltd and Macquarie Film Corporation Ltd. Each
could raise up to $20 million concessional capital over two
financial years ending June 2000. Only $22.4 million out of
the possible $40 million was secured by that date; $16.26 million
for Macquarie and $6.14 million for Content Capital. Concessions
ended in June 2000, but non-concessional investment in the FLICs
continued to 30 June 2002. While the FLICs could continue to raise
non-concessional capital until June 2002, projects had to be
completed by 30 April 2003. The pilot scheme ended in June 2003. In
October 2003, a review reported to the Government that the scheme
had broadened the base of investment in Australian films
.(21)
As part of its 2004 Election policy, the Coalition promised:
A re-elected Coalition Government will work in
partnership with the film industry to extend the FLIC scheme. This
will help gear up much needed private sector investment in the
industry and provide alternative avenues for co-production. This
measure will cost $4 million in each of 2006-07 and
2007-08.(22)
This promise was manifested in a package of measures to
facilitate greater private investment in the film sector and
continue to encourage a more entrepreneurial approach to secure the
long-term viability of our film industry. (23) Some of
these measures were introduced with the 2004 Budget and others
promised in the 2004 election campaign for 2004.
Among the former were measures extending the refundable tax
offset for large budget film production to television series and
serials, and boosting funding for the Film Finance Corporation
(FFC) to $60.5 million in 2004-05 and supporting their review of
investment policies and guidelines for 2004-05.(24)
Among the latter were measures extending funding for AusFILM,
Australia's film and location marketing organisation. AusFILM was
to provide offshore producers with a one-stop shop for all aspects
of film-making in Australia. Another measure promised to further
boost funding to the Film Finance Corporation (FFC), Australian
Film Commission (AFC), ScreenSound and Australian Film, Television
and Radio School.(25)
The Government also pledged continuing support and funding for
SBS Independent (SBSi), the independent commissioning arm of SBS,
and for Film Australia's National Interest
Program.(26)
On the tax concession front, the Coalition promised to undertake
a review of key provisions of Divisions 10B and 10BA of the ITAA
1936. The review was to develop proposals for improving certainty
and ensuring that the provisions operate effectively. The
Government also proposed the amendment of section 79D of the Act to
ensure that it operates consistent with the original
intent.(27)
After having been re-elected, the Government announced on 10 May
2005 that it would extend the (FLIC) scheme for two years. In their
joint announcement the Minister for the Arts and Sport, Rod Kemp,
and the Minister for Revenue and Assistant Treasurer, Mal Brough,
said that:
This extension fulfils the Government s commitment
to help gear up much needed private sector investment in the film
industry and provides alternative avenues for co-production, [ ]
The FLIC structure itself allows investors to spread risk by
investing in a slate of film projects whilst receiving a
100 per cent income tax deduction on the funds invested.
The extension will allow one licensee to raise concessional capital
which will be capped at $10 million in each of the two years.
The concessional capital raising will begin from the date of issue
of the licence and will conclude on 30 June 2007. This
new measure fulfils the Government s 2004 election commitment to
extend the pilot FLIC scheme over two years at a cost of $8
million, as announced in Strengthening Australian Arts, A World
Class Australian Film Industry.(28)
In relation to the existing tax concessions for the film
industry, they further announced:
In another positive step for the Australian film
industry, section 79D of the Income Tax Assessment Act
1936 will be amended to allow taxpayers to deduct foreign
losses from domestic income. This broad measure fulfils the
Government's election commitment to amend the law in regard to the
interaction of the foreign loss quarantining rules and the
Australian film tax deduction concessions contained in Divisions
10BA and 10B. The measure removes the quarantining rule altogether,
thus fulfilling the promise. For further information on this
measure please see the Treasurer s press release International
Tax Reforms, particularly attachment C released on
10 May 2005. A review of the key provisions of Divisions
10BA and 10B was also announced as part of the 2004 election
policy. A discussion paper calling for submissions to the review
will be issued shortly.(29)
The package of measures taken or promised by the Government in
2004 and 2005 were widely supported by different sectors of the
industry as were, for the similar reasons, Labor s package of
measures proposed in the context of the 2004 election campaign.
Without referring expressly to FLICs, Labor s Shadow Minister for
the Arts, Senator Kate Lundy, announced that:
Labor understands the importance of encouraging
private sector investment in Australian films, as well as
attracting overseas investment, to provide funding for the
development and production of film and television series in
Australia. Labor is committed to maintaining existing concessional
tax arrangements and will explore new incentives and initiatives to
encourage support from the private sector, as well as investigate
any administrative issues that could be providing a disincentive to
investors in film and television production. (30)
Under the proposed FLIC scheme, companies will be able to raise
funds for investment in so called qualifying Australian films .
This term is defined in clause 6 of the proposed
FLIC Bill, referring to the definition contained in Part III,
Division 10BA of the Income Tax Assessment Act 1936 (ITAA
1936) under which a qualifying Australian film a so called eligible
Australian film .
A film is considered to be an eligible film within the meaning
of the ITAA 1936 if the film was produced wholly or principally for
exhibition to the public in cinemas or by way of television
broadcasting, being a feature film or a film of a like nature
produced for exhibition by way of television broadcasting, a
documentary or a mini-series of television drama.(31)
However, this does not include a reference to a film which is:
- a film for exhibition as an advertising program or a
commercial
- a film for exhibition as a discussion program, a quiz program a
panel program, a variety program or a program of a like nature
- a film of a public event
- a film forming part of a drama program series that is, or is
intended to be, of a continuing nature, or
- a training film.
A film is considered to be an Australian film within the meaning
of the ITAA 1936 if it:
- has been made wholly or substantially in Australia or in an
external Territory and has a significant Australian content;
or
- has been made in pursuance of an agreement or arrangement
entered into between the Government of Australia or an authority of
the Government of Australia and the Government of another country
or an authority of the Government of another country.
Only films which can fulfil the above criteria, amongst others,
will be able to be financed by FLICs.
Part 1 of the FLIC Bill sets out the objects of
the legislation (clause 4), stipulates that
several provisions operate outside the Australia s jurisdiction
(clause 5) and contains a definition section which
contains the key definition for the proposed legislation.
Part 2 of the FLIC Bill is subdivided into 10
Divisions which will devise the FLIC scheme.
Proposed Division 2 to
4 are concerned with the application for, and
grant of, a concessional capital license (CPL).
Under Division 2, the Minister has the authority to stipulate
the rules applicable to application process (application rules).
Clause 8 of the FLIC Bill contains a
non-exhaustive list of matters which may be stipulated by the
Minister. These matters include:
- the method of calling for applications
- the closing date for a round of applications
- the form of the application and the documentation that must
accompany an application
- the establishing of a Selection Advisory Panel (SAP) to advise
the Minister in respect of the applications including the
membership of the panel and tenure of panel members
- the rules governing the operation of the SAP, and
- any other matter relevant to the application process under the
scheme.
In addition, under proposed clause 9 of the
FLIC Bill, the Minister must determine:
- the criteria which must be applied by the Minister
- the weight which is given to each of these criteria, and
- the procedures the Minister must adhere to
in deciding to whom a license may be granted.
The stipulation of the application rules, as well as the
criteria and procedures referred to above, must be made by virtue
of legislative instruments. Accordingly, the determinations are
subject to the Legislative Instruments Act 2003 (LIA)
and
- must be registered with the Federal Register of Legislative
Instruments (FRLI)
- must be tabled in both Houses of Parliament within six sitting
days after their registration, and
- are subject to disallowance by either House.
Division 3 of the FLIC Bill sets out the
application process to obtain a CPL. Under clause
10 of the FLIC Bill, the Minister may call for a round of
applications for a license, but may also call for further
applications if the initial round fails to result in the issuing of
that license. Clause 11 specifies the procedural
aspects for the applicants, which includes that they have to
provide the information as required by the application rules. If
this information is insufficient to make a decision whether or not
to grant the license, the Minister has the power to request further
information under clause 12 of the FLIC Bill.
Division 4 is concerned with the grant of the
license. Once a licence was granted to an applying company, this
company becomes a film licensed investment company (FLIC). Under
clause 14 of the FLIC Bill, the Minister is given
a discretionary power to grant a license, but only if all the
conditions and requirements set out in Part 2 of the FLIC Bill have
been met by the applicant. Apart from these other conditions
contained in Part 2 (which are referred to below), clause
13 contains a set of mandatory conditions on the grant of
a CPL. These conditions are that:
- the company is registered under the Corporations Act
2001
- the company has not started business or exercised any borrowing
power
- the company s central management and control is ordinarily
exercised in Australia
- the chair of the company and all of the company s directors are
Australian citizens, and
- the company s constitution provides that all of the shares in
the company are to be fully paid and of the same class.
Further, the Minister must take into account the recommendations
made by the SAP (clause 16). Should the Minister
decide not to grant a license, then clause 17 will
provide that the applicant must be informed of this decision,
including the reasons for this decision, in writing.
The minimum formal requirements of a license granted under this
scheme are set out in clause 15 of the FLIC
Bill.
Divisions 5 and 6 specify
further details of the CPL that may be granted to an applying
company. Under Divisions 5, a FLIC may raise up to $10 million for
the financial years starting on 1 July 2005 and 1 July 2006
(clause 18). Division 6, clause
19 stipulates the license period which spans from the day
on which the CPL was granted to the
- day the revocation of the CPL as made by the Minister may take
effect, or
- otherwise, on 30 June 2007.
Division 7 of the FLIC Bill sets out the
conditions which apply to FLICs under the scheme. Broadly speaking,
the FLIC Bill contemplates two types of conditions: conditions
expressly stipulated in the Bill (statutory conditions) and those
prescribed by virtue of a determination made by the Minister in
form of a legislative instrument (subclauses 20(1)
and (2) of the FLIC Bill).
The statutory conditions applicable to FLICs will be grouped
into 7 categories. All conditions set out in these categories are
mandatory. The categories are:
Clause 22 of the FLIC Bill contains specific
conditions in relation to the FLICs fund raising efforts. In
particular, the clause provides that a FLIC must:
- raise a minimum of $5 million capital in the first 12 months of
the licence period
- not raise than $10 million in each of the two financial years
starting 1 July 2005
- not issue debentures or convertible notes for the purpose of
raising capital, and
- not borrow any monies (except during the financial year
starting on 1 July 2005 for the purpose of meeting administrative
costs).
Clause 23 of the FLIC Bill contains specific
conditions relating to the FLICs ability to invest monies raised
under the scheme. This includes that a FLIC must:
- before 30 June 2008, invest its concessional capital raised
under this scheme into two or more films which have been
provisionally certified
- not start its investment before the FLIC has either raised $5
million of concessional capital or, a period of 12 months has
lapsed since the grant of the CPL, and
- not invest more than half as much of its capital (whether
concession or non-concessional capital) as a contribution to
marketing and distributing a film as it spends as a contribution to
the production costs of the film.
Under clause 24 of the FLIC Bill, the FLIC must
comply with several conditions in relation to the distribution of
returns to its shareholders. These include that the FLIC must:
- distribute to its shareholders returns attributable to capital
invested by the FLIC in a provisionally certified film, and
- distribute these returns in equal proportion to the number of
shares held by the shareholders.
Under section 25, a FLIC must not invest in
films developed or produced by:
- the holder of a licence allocated by the Australian
Communications and Media Authority under the Broadcasting
Services Act 1992 or an associate of such a person
- the provider of a broadcasting service in accordance with a
class licence determined by the Australian Communications and Media
Authority under section 117 of the Broadcasting Services
or an associate of such a person;
- the Australian Broadcasting Corporation, or
- the Special Broadcasting Service.
Subclause 25(b) provides that the film must
receive a final certificate under section 124ZAC of the ITAA 1936
prior to 30 June 2009. In receiving this certificate, the Minister
confirms that for the production of the film, a claim has not been
made for a tax offset under Division 376 of the Income Tax
Assessment Act 1997.
Clause 26 provides that the FLIC must continue
to comply with any precondition set out in subclauses 13(a), (c)
(d) and (e) of the Bill.(32) Further, the FLIC must
comply with any condition contained in a determination made by the
Minister under clause 21 of the Bill (see discussion below).
Subclause 27(1) of the Bill stipulates the
general principle that a FLIC must not have an unacceptable level
of foreign or individual ownership. Under subclause
27(2), an unacceptable level of foreign ownership will be
reached if a group of foreign persons hold a particular
stake of more than 33 per cent in the FLIC. Similarly, an
unacceptable level of individual ownership is reached if a
particular person holds a stake of more than 33 per cent
in the FLIC. The term stake, for the purposes of this
scheme, is defined in clause 11 of Schedule 1 to
the Bill and includes the aggregate of direct control interests in
the FLIC that a person and his or her associates may hold at a
particular point in time (Schedule 1, subclause 11(1) of the FLIC
Bill). Schedule 1 of the FLIC Bill contains further details in
relation to the ownership rules which are discussed in more detail
below.(33)
Clause 28 of the FLIC Bill
stipulates further conditions, including for example that a FLIC
must:
- not purport to transfer the CPL to another person. Any such
purported transfer will be deemed to be void under clause
38 of the Bill
- comply with certain reporting requirements contained in
Division 9 of the FLIC Bill, and
- comply with certain accounting standards.
Under clause 21 of the FLIC Bill, the Minister
may determine conditions which apply to a FLIC under the scheme.
Such determinations must be made in the form of a legislative
instrument which must be registered on the FRLI. The legislative
instrument will be subject to the provisions contained in the LIA,
which means that it must be tabled in Parliament and will be
subject to disallowance.
Division 8 of the FLIC Bill includes provisions
which set out the powers, rights and obligations of the Minister in
relation to suspected and proven breaches of the conditions
discussed above.
To maintain procedural fairness, the Minister will be required
to notify a FLIC that he or she is of the opinion that the FLIC is
in breach of a condition of the scheme (clause
29). This notification must be in writing and must invite
the FLIC to make written submissions within 28 days. In addition,
the Minister may request further information from the FLIC under
clause 30 of the FLIC Bill. Finally, under
clause 31, the Minister will be obliged to
consider any submission made, or further information provided, by
the FLIC before making a decision as to which action to take in
response to the breach. Under clause 32 of the
FLIC Bill, such action may include:
- not to take any action with respect to the breach
(paragraph 32(1)(a))
- to issue a notice to remedy the breach within a certain period
of time (paragraph 32(2)(a)). Should the FLIC to
remedy the breach, the Minister may choose from any of the actions
listed in this paragraph
- to revoke the licence (paragraph 32(2)(b)),
or
- to remove the concessional status of the of the shares that
were issued by the FLIC to investors (paragraph
32(2)(c)).
In order to strip the tax concessional status of a FLIC for its
investors under this scheme, the Minister must inform the
Commissioner for Taxation of any CLP revocation or removal of
concessional status within 28 days. The Commissioner must also be
informed if the Minister decides not to take any action under
clause 32(1)(a) (subclause 32(4)).
Importantly, decisions made by the Minister can be appealed to
the Administrative Appeals Tribunal under section
42 of the FLIC Bill.
Should the Minister decide to revoke a CPL without removing the
concessional status of the investor s shares, the FLIC must invest
the funds into a provisionally certified film within 6 months from
the day on which the revocation took effect (clause
34).
Part 3 of the Bill offences
concerning ownership restrictions
The Bill contains two offence provisions dealing with offences
committed in relation to the acquisition of shares and the
avoidance of the ownership restrictions.
Under clause 40 of the FLIC Bill, persons will
commit an offence if the person, or persons in some kind of
arrangement, acquire shares in a FLIC which result in
- an unacceptable level of foreign or individual ownership in the
FLIC (paragraphs 40(a)(i) and
(iii)), or
- where such a level already exists the increase in an
unacceptable level of foreign or individual ownership in the FLIC
(paragraphs 40(a)(ii) and
(iv)).
Under clause 41 of the FLIC Bill, a person, or
persons, who take steps with the sole or dominant purpose of
avoiding the ownership restriction rules set out in clause 27 of
the Bill, may be committing an offence, if:
- the Minister gives them a direction to cease holding their
stake
- the persons engage in conduct, and
- this conduct breaches the Minister s direction
(paragraphs 41(3)(a) to (c) of
the Bill).
The offences set out in Part 3 of the FLIC Bill are subject to
the definitions contained in Schedule 1 of the Bill.
Schedule 1 defines the terms used in the
conditions of scheme, especially in relation to certain provisions
restricting film making, ownership in a FLIC and the offence
provisions.
Clause 2 of Schedule 1 contains a variety of
definitions, some of which are further defined in the provisions
following this clause. These more detailed statutory definitions
include, for example:
when are foreign citizens deemed to be ordinarily
resident in Australia? (clause 3 of Schedule
1)
what constitutes entering into an agreement or
arrangement within the meaning of the Bill? (clause 4 of
Schedule 1)
who are associates? (clause 5 of Schedule
1), and
what constitutes a direct control interest in a
FLIC? (clause 12 of Schedule 1).
The FLIC (CP) Bill makes consequential changes to the ITAA 1997
(Schedule 1, Part 1 of the FLIC (CP) Bill) and
repeals the old scheme contained in the Film Licensed
Investment Company Act 1998 (Schedule 1, Part
2 of the FLIC (CP) Scheme). However, the applicability of
any provision relevant to a FLIC established under the old scheme
is saved by virtue of Schedule 1, Part 3 of the
FLIC (CP) Bill.
Concluding Comments
Kim Dalton, Chief Executive of the Australian Film Commission
has noted that:
Australian governments of all persuasions have
accepted that without government intervention it is extremely
difficult for small nations like ours to produce cultural goods
that give full expression to our stories, ideas and images.
(34)
The FLIC scheme devised in this Bill will be one pillar of
government intervention by providing tax concessions for investors
who choose to provide funds for the production of Australian films.
The Bill raises the following general issues:
- K. Dalton, Chief Executive, Australian Film Commission,
Opportunities and Implications for Australia s Film, Television and
New Media Sectors , speech,
Film Victoria Free Trade Agreement Seminar, 28 October 2004, p.
5.
- Australian Film Commission, Australian films share of the
Australian box office, 1977-2004 , available at http://www.afc.gov.au/GTP/wcboshare.html,
accessed on 1 June 2005.
- Australian Film Commission, Australian films share of the
Australian box office, 1977-2004 , available at http://www.afc.gov.au/GTP/wcboshare.html,
accessed on 1 June 2005.
- Foot-loose businesses are businesses which are not
tied down to a particular location.
- R. Miller, The Joy of Tax Tax Incentives: Europe, Australasia
and South Africa , Screen International, 1 April 2005. One
example for economic success is the production of the Lord of
the Rings Trilogy in New Zealand. NZ Institute of Economic
Research, Scoping the Lasting Effects of the Lord of the Rings,
Report to the New Zealand Film Commission, April 2002, available at
http://www.nzier.org.nz/SITE_Default/SITE_Publications/x-files/181.pdf,
accessed on 31 May 2005.
- The term soft money was coined in the article P. Frater, The
hard facts about soft money , Screen daily.com, 6 January
2003 to describe production funds raised in form of tax incentives
or box-office rebates.
- P. Frater, ibid..
- ibid.
- For details of incentives offered by various countries and,
within North America, states and provinces, see Miller, op. cit.,
pp. 16-19.
- Further details can be found at the AFFC s webpage at http://www.ffc.gov.au.
- The Australian Film Commission (AFC) is the Federal Government
s agency for supporting the development of film, television and
interactive digital media projects and their creators, particularly
in the independent sector. Further details can be found at the AFC
s webpage at http://www.afc.gov.au.
- Film Australia is a Federal Government-owned production and
distribution company; it is one of the nation s largest producers
and distributors of television documentaries and educational
programs. Through the National Interest Program it receives finance
to devise, produce and distribute programs which deal with matters
of national interest to Australia or illustrate and interpret
aspects of Australian life. Further details can be found at Film
Australia s webpage at http://www.filmaust.com.au.
- Special Broadcasting Service Independent (SBSI) receives
funding from SBS through its annual appropriation, but the greater
part of SBSI finance comes directly from the Federal Government
through the Special Production Fund. Further details can be found
at SBSI s webpage at http://www.sbs.com.au/sbsi/.
- The Australian Children s Television Foundation (ACTF) is a
national non-profit organisation created to encourage development,
production and dissemination of television programs, films and
other audiovisual media for children and to promote these programs
in the community. Further details can be found at ACTF s webpage at
http://www.actf.com.au.
- For a breakdown by year and body, the reader is referred to the
AFC s webpage at http://www.afc.gov.au/GTP/ogovtfundbudget.html.
To complete this list, the reader s attention is drawn to the
Australian Film Television and Radio School (AFTRS) and the
National Screen and Sound Archive (ScreenSound Australia) The AFTRS
is the national centre for professional education and advanced
training in film, broadcasting and interactive media for Australian
citizens and permanent residents. Further information about the
AFTRS can be found at http://www.aftrs.edu.au. ScreenSound
Australia plays a leading role in preserving and collecting
Australia s film, television and sound heritage. Total revenues
from the Federal Government have increased in recent years to allow
for loan payments on the new headquarters building and to maintain
the capital value of the collection. Further information about
Screensound Australia can be found at http://www.screensound.gov.au.
- CCH, Australian Master Tax Guide, CCH Australia Limited,
Sydney, 2005, p. 1095.
- This includes equitable rights in the copyright. See generally:
See generally R. L. Deutsch, M. L. Friezer, I. G. Fullerton, M. M.
Gibson, P. J. Hanley, T. J. Snape, Australian Tax
Handbook, Thomson ATP, Sydney, 2005, p. 736.
- CCH, Australian Master Tax Guide, op. cit., p. 1103.
- D. Gonski, Review of Commonwealth Assistance to the Film
Industry, Report prepared for the Department of Communication
and the Arts, Canberra, 1997.
- C. Field, Film Licensed Investment Company Bill 1998 , Bills
Digest, No. 221, Information and Research Services, Canberra,
1997 98. C. Field and M. A. Nielsen, Film Licensed Investment
Company Bill 1998 , Bills
Digest, No. 31, Information and Research Services, Canberra,
1998 99.
- Australian Liberal Party, Coalition Election 2004:
Strengthening Australian Arts, Policy
Document, Canberra, 2004.
- ibid.
- ibid.
- ibid.
- ibid.
- ibid.
- ibid.
- The Hon. M. Brough, Assistant Treasurer and Minister for
Revenue, and the The Hon. R. Kemp, Minister for the Arts and Sport,
New measures to support the film industry Film Licensed Investment
Company Scheme Extension ,
Joint media release, No. 36, Canberra, 2005.
- ibid.
- K. Lundy, Shadow Minister for the Arts, Creative Opportunity:
Australian Stories Investing in Australian film and television ,
Policy Document, Canberra, 2004.
- The term film is also defined in the ITAA 1936 and means an
aggregate of images, or of images and sounds, embodied in any
material .
- See this Digest above, p 12.
- See this Digest above, pp. 16.
- Dalton, op. cit., p. 5.
- Annex II to the Australia-US Free Trade Agreement, which
contains a list of permitted non-conforming measures, is available
at
http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/non-conforming_measures/Annex_II_combined.pdf,
accessed on 1 June 2005.
- The Hon. P. Mc Gauran, Minister for Citizenship and
Multicultural Affairs, Second reading Speech: Film Licensed
Investment Company Bill 2005 , Bills, House of Representatives, 26
May 2005, p. 6.
- S. Maher, Internationalisation of Australian Film and
Television , paper,
Communications Law Centre, Melbourne, 2001, p. 61-71.
Thomas John
Bills Digest Service
John Gardiner-Garden
14 June 2005
Social Policy Section
Information and Research Services
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
professional legal opinion.
IRS staff are available to discuss the paper's
contents with Senators and Members and their staff but not with
members of the public.
ISSN 1328-8091
© Commonwealth of Australia 2005
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