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Changes to legislation as Aussies & Kiwis pass in opposite directions

SPADA continues to lobby the government about proposed changes contained in the New Zealand Screen Production Incentive Fund Tax Amendments in the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill.

Since making a submission in January, SPADA has been attempting to twist some arms down Beehive Way, albeit with little immediate success. The Bill looks set to be passed into law.

The gist of the proposed changes to “the Bill” (I’ve no intention of retyping its title!) is to discontinue the ability to make deductions for qualifying SPIF-funded films in the year of a film’s completion, but instead to spread the deductions over two years, which might mean three tax years.

For those without an accounting degree, the result of the change is that there will be an increased period of time for which producers and investors will need to cashflow production expenditure. At best this will tie up funds that could be used for other purposes, at worst it will mean increased borrowing costs.

As $32.5M of the SPIF funding has been moved across from existing funding to the New Zealand Film Commission (NZFC), the amendments remove that money from eligibility for immediate deductions.

On a $10 million feature, cashflowing a SPIF input at 40%/$4 million and the balance of costs financed over 12 months, the cost of cash-flowing under the amended legislation could vary between $680,000 (assuming 60% NZFC funding) and $833,000 (assuming no NZFC funding).

The amendment will affect all films receiving funding through SPIF, regardless of the amount of funding.

This creates a situation where private investment in NZ features, already a game only for those with strong stomachs, becomes even more risky if SPIF also finances the production. It also erodes some of the proposed benefit of creating SPIF and is expected to impact both the number and cost of productions made with SPIF assistance.

SPADA estimates a potential loss of $3-5M a year with productions unable to get up due to the increased cost of financing. Another potential side effect is that budgets will need to be increased to take account of additional financing costs, placing greater burdens on both the SPIF fund and other NZFC funding.

The implications for TV production are harder to estimate, as producers cannot access both SPIF and NZ On Air funding, but the likely effect – to increase finance cost – is the same.

On a $10 million TV production or series, with SPIF input at 20%/$2 million and the balance of costs financed over 12 months, the cost of cash-flowing could vary between $391,000 (assuming NZFC 60% and private investor/producer funding at 20%) and $544,000 (NZFC 0%, private investor/producer funding at 80%).

Further complicating the issue is the proposal to introduce the change on January 1, 2010. This will effectively backdate the change for projects currently in production, adding to their financing costs at a stage when most already have confirmed budgets.

Although the amendment to the legislation is likely to pass into law, SPIF is due to be reviewed in 2010, at which time SPADA will attempt to quantify any effects that the change in legislation is causing.