Film and government funding

Sections CW 37, CX 47, CX 48C, DF 1(6), DF 5, DS 2, EJ 4, EJ 5, EJ 7 and EJ 8 of the Income Tax Act 2007; sections 81, 85F and 87 of the Tax Administration Act 1994

Screen Production Incentive Fund

The amendments change the tax treatment of the net cost of films that receive grants from the new Screen Production Incentive Fund (SPIF). Because the grant receives standard grant tax treatment, the net of the grant cost of the film is deductible. The amendments provide that the deduction is over the standard two-year period, instead of being immediately available. Consequential amendments have also been made in relation to SPIF grant co-funding by government agencies and on secrecy matters.

Background

As a part of Budget 2008, the government announced a new film grant – the SPIF grant. Under the terms of the grant, “New Zealand” feature films are eligible for a 40% grant and other New Zealand screen formats are eligible for a 20% grant. The Film Commission has overall responsibility for administering and paying the grant, but Inland Revenue is responsible for verifying the cost of the production to enable the grant to be quantified.

Key features

Sections CX 47, DS 2(4), EJ 4, EJ 5, EJ 7 and EJ 8 contain the definition of “Government Screen Production Payment” which is now used to cover both large budget screen production grants (LBSPG) and SPIF grants. These sections also specify that films receiving the SPIF grant are deductible over the usual two-year period, rather than qualify for the immediate deduction incentive.

The inclusion of sections CX 48C and DF 5 means that standard grant treatment explicitly applies to any funding from government funding organisations that is in addition to funding received via SPIF grants. This further reduces the allowable deductible expenditure of the production by the value of the additional funding from government funding organisations. Any payments to these funding bodies are, however, deductible.

Sections 81, 85F and 87 of the Tax Administration Act 1994 have been amended so that tax auditing and secrecy obligations for the LBSPG also apply to SPIF grants.

Application dates

The SPIF measures apply from 1 January 2010.

The information sharing and secrecy measures apply from the date of Royal assent, being 6 October 2009.

Large Budget Screen Production Grant

Amendments have been made to the tax treatment of the Large Budget Screen Production Fund (LBSPF) to give the grant standard treatment, the same tax treatment as the new SPIF grant.

Background

When the LBSPG was introduced, the standard grant treatment was turned off. Instead, a deduction was allowed for the full cost of the film. This resulted in artificial tax losses being created and there was concern these might become more generally usable. Any incentive allowed for the screen industries should be explicit so accordingly, the ability for producers to use artificial tax losses has been removed. The tax treatment of the LBSPG has therefore been amended to provide the standard grant tax treatment.

Key feature

The repeal of sections CW 37 and DF 1(6) ensures the LBSPG is also given the standard grant treatment - meaning that the cost of the film will be reduced by the amount of the grant.

Application dates

Changes to the LBSPG apply when the final application for the grant is made from 1 October 2009, except when the project incurred at least $3 million in film-related expenditure by 1 July 2008.