Podcast – Producer Offset
Expert advice on the Producer Offset – the tax rebate for Australian content.
Peter Rabbit, Michele McDonald
Find this episode of the Screen Australia Podcast on iTunes, Spotify, Stitcher or Pocket Casts
What’s the Producer Offset? How much is it worth? How do I get it? How long will it take?
These are just some of the topics covered by Michele Mcdonald, Senior Manager of Screen Australia’s Producer Offset and Co-Production Unit (POCU), in this latest podcast episode.
Michele discusses the basics – such as the Significant Australian Content (SAC) test and how many government offsets you can get - to more intricate queries around the Gallipoli Clause, and the use of Cinema on Demand in feature film applications.
So whether you’re thinking about applying for the Producer Offset, need a refresher, or want to wade into some of the more detailed aspects of Australian screen incentives, check out this episode of the Screen Australia podcast on iTunes, Stitcher or Pocketcasts.
NEW TO THE PRODUCER OFFSET?
Before you listen, read this.
The Producer Offset was introduced in 2007, as a means of giving Australian producers equity in their projects and building a sustainable businesses. It has been described by producers such as Academy Award-winner Emile Sherman (The King’s Speech, Lion) from See-Saw Films as “the anchor around which our entire business has been built.”
The Producer Offset is a tax rebate for Australian producers that’s administered by Screen Australia on behalf of the Federal Government. It’s one of three Federal Government screen incentives. The other two, which are administered by the Department of Communications and the Arts, are the Location Offset and the Post Production and Digital Effects (PDV) Offset.
For feature films, the Producer Offset is worth 40% of QAPE (Qualifying Australian Production Expenditure), and for television and other eligible formats, it’s worth 20% of QAPE.
So for example, let’s say you were an Australian producer and made a feature film for $1.2 million. In this scenario, $1 million of that budget was spent in Australia, and was therefore Qualifying Australian Production Expenditure or QAPE. So after you submitted your Final Certificate for the Producer Offset, you would get 40% of $1 million (or $400,000) back from the Australian Tax Office (ATO). If you made a television series for the same amount, you would get 20% of $1 million back – or $200,000.
It’s assessed by Screen Australia in two stages – the optional Provisional Certificate, and mandatory Final Certificate. It takes around 12 weeks to assess and submit a Final Certificate (longer for large/complex projects or incomplete applications). Once a producer has their Final Certificate, they can submit it to the Australian Tax Office (ATO) who does the final check and reimbursement of funds.
In 2018/19, there were 164 Final Certificates issued for the Producer Offset across film, television and documentary.
There is specific eligibility criteria for those applying for a Provisional or Final Certificate, and even more detailed guidelines as to what qualifies as a feature film, television series or documentary.
FURTHER READING
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AUDIO TRANSCRIPT
[00:00:02] Caris Bizzaca Welcome to the Screen Australia podcast. I'm Caris Bizzaca, a journalist with Screen News, which you can find on the Screen Australia website. On this episode, I'm joined by Michele Mcdonald, who is the Senior Manager in the Producer Offset and Co-production Unit here at Screen Australia. Michele is one of those people who knows everything there is to know about the Producer Offset and so is the perfect person to talk us through the basics, but then to dive into some of the nitty gritty questions that are around as well. So during the chat, we cover everything from who can get the Producer Offset and how much it's worth, to the meaning of the Gallipoli Clause, if Cinema on Demand counts as a theatrical release, and how to make the process as smooth and easy as possible. For further reading, we've included a link in the show notes to the Producer Offset section of the website where you'll find the guidelines, the legislation, loans and cash flow providers, as well as a document library with all the spreadsheets you'll need if you're putting together an application. And if you haven't already, you can subscribe to our fortnightly newsletter and we'll send you all the latest opportunities, funding announcements, videos, podcasts and more. Now here's Screen Australia's Senior Manager of the Producer Offset and Co-production Unit, Michele Mcdonald.
[00:01:26] Caris Bizzaca Michele, welcome to the Screen Australia podcast. First of all, what do you do at Screen Australia?
[00:01:34] Michele Mcdonald Hello. I am the Senior Manager of the Producer Offset and Co-production Unit here at Screen Australia.
[00:01:40] Caris Bizzaca Which is also referred to as POCU, but we'll get to that in a minute. And what's your background in the industry?
[00:01:48] Michele Mcdonald I've worked at Screen Australia since its inception back in 2007 and pretty much since the beginning of the Producer Offset program. Prior to that, I worked at the Film Finance Corporation in the investment arm, and prior to that, just lots of different life things.
[00:02:07] Caris Bizzaca OK. And one of the things that I thought would be good to start off with [in] this chat - because we're going to be talking about the Producer Offset and it can be quite technical - that we could just try and run through as many quick questions as we can within around a five minute timeframe or so. So we're going to do a lot of quick fire ones and just kind of give everyone a bit of an overview as to what the Producer Offset is. OK? And go. What is the Producer Offset?
[00:02:40] Michele Mcdonald So the Producer Offset is a refundable tax offset, also known as a tax rebate, for producers of Australian feature films, television and other projects.
[00:02:50] Caris Bizzaca And how much is the Producer Offset worth?
[00:02:52] Michele Mcdonald It's a 40% rebate on theatrical feature films - 40% of Qualifying Australian Production Expenditure (QAPE). And 20% of QAPE for other eligible formats such as television, online, documentary, etc.
[00:03:08] Caris Bizzaca And when was it introduced?
[00:03:09] Michele Mcdonald It was introduced back in 2007 as part of the 07/08 federal budget and started to be administered from about January 2008.
[00:03:22] Caris Bizzaca And how many projects got the Producer Offset in the last financial year?
[00:03:25] Michele Mcdonald We've just run the numbers. So 164 final certificates were issued and 138 provisional certificates.
[00:03:32] Caris Bizzaca And were they all films?
[00:03:33] Michele Mcdonald No, a mixture.
[00:03:35] Caris Bizzaca And can a web series get the Producer Offset?
[00:03:38] Michele Mcdonald Yes it can, but it must meet the minimum duration and minimum QAPE thresholds required.
[00:03:44] Caris Bizzaca OK. What about a documentary? Can they get the Producer Offset?
[00:03:47] Michele Mcdonald Yes, they can. But they must meet the legislative definition of what a documentary is and also the minimum duration and minimum QAPE thresholds.
[00:03:56] Caris Bizzaca OK. We'll put some of these definitions into the show notes as well. And how long does it take to get the Producer Offset?
[00:04:04] Michele Mcdonald For a provisional certificate, it takes six weeks from when we receive a complete application, and for a final certificate it takes Screen Australia 12 weeks to assess and issue a final certificate. And then it's sent through to the ATO (Australian Tax Office) and they take around 28 days for a standard refund.
[00:04:23] Caris Bizzaca And how many stages do you have to go through? You mentioned provisional [and] final [certificates] - how many stages?
[00:04:27] Michele Mcdonald So applicants can apply for a provisional certificate prior to production, which is a non-binding eligibility guide. And that will just give people an idea [of] yes, their project's eligible. But you don't have to do that. But what you do have to do is come in for a final certificate once your film is finished and all the accounts are audited and everything's wrapped up. And we then issue a final certificate, which you do need to have to get the offset.
[00:04:54] Caris Bizzaca And so can getting a provisional certificate make the process easier?
[00:04:58] Michele Mcdonald It can. And it's good for producers to start engaging with the process. And what we can do at provisional is just, I guess, highlight any red flags that we might see in the production and things for the producers to keep their eye out for.
[00:05:11] Caris Bizzaca And so can you apply for the Producer Offset if your budget is lower than $500,000?
[00:05:17] Michele Mcdonald No, you can't. So the minimum QAPE threshold pretty much across the board is $500,000 of QAPE.
[00:05:23] Caris Bizzaca And what is QAPE?
[00:05:24] Michele Mcdonald So QAPE is Qualifying Australian Production Expenditure. And fundamentally that's your production costs and really just excludes financing costs at the front and distribution costs at the end of your production.
[00:05:37] Caris Bizzaca And what is the SAC test?
[00:05:39] Michele Mcdonald So the SAC is Significant Australian Content and so that is the test we apply to confirm a project's eligible and that it has Australian content.
[00:05:49] Caris Bizzaca And we mentioned it before, what is POCU?
[00:05:51] Michele Mcdonald So POCU is the Producer Offset and Co-production Unit at Screen Australia.
[00:05:56] Caris Bizzaca And why does Screen Australia make everything an acronym?
[00:05:59] Michele Mcdonald Good question. I don't know. Sanity? For our sanity and so we don't get RSI just typing out those long names.
[00:06:05] Caris Bizzaca Yeah, that's fair enough. I can empathise with that. And why can't you just update the Producer Offset?
[00:06:11] Michele Mcdonald The Producer Offset operates under tax legislation. So therefore, if there are any changes to it, it's a matter of government and it requires legislative change.
[00:06:23] Caris Bizzaca And how many federal government offsets does Australia have?
[00:06:27] Michele Mcdonald So [for] federal film offsets, there are three [that are] part of a package. And the Producer Offset is one of them and the other two are the Location Offset and the Post-production and Digital Effects Offset, which we call the PDV Offset.
[00:06:42] Caris Bizzaca And does Screen Australia handle all of them?
[00:06:44] Michele Mcdonald No, Screen Australia administers the Producer Offset and the Department of Communication and Arts in Canberra, they administer the Location Offset and the PDV Offset.
[00:06:52] Caris Bizzaca And so Aquaman and Thor Ragnarok **five-minute timer beeps in background** - oh, there's my timer. That's, OK. We've still got a few to go. So we're going to keep going, but that's good to know. So Aquaman and Thor Ragnarok, can they get the Producer Offset [because] they were filmed here?
[00:07:08] Michele Mcdonald For big budget projects that are just coming to Australia to use Australia as a location, they're most likely to go through the Location Offset route and also applying for the top up. There is an extra top up available as part of that incentive. Those projects probably wouldn't pass the Significant Australian Content test because the majority of the key creatives are not Australian. And really they are just coming to Australia to use of the locations and then [are] going back and doing post back in the States. So probably more akin to a Location Offset film.
[00:07:43] Caris Bizzaca And what is PDV [that] we mentioned before?
[00:07:46] Michele Mcdonald Yeah, PDV is a Post-production and Digital Effects Offset.
[00:07:50] Caris Bizzaca And what is this about an extra 10% for PDV?
[00:07:53] Michele Mcdonald Well, three of the states over the last six to 12 months - and those states are Queensland, South Australia, and very recently New South Wales - have announced an extra 10% rebate on post-production costs or post-production work done in their state, which you can add to the federal incentive. So if you're getting the PDV incentive, the federal one, and you do your post in Queensland, then you can get an extra 10%. And that's paid by the state government, not the federal government.
[00:08:22] Caris Bizzaca And in terms of the three federal government offsets that you mentioned, can you get more than one?
[00:08:27] Michele Mcdonald No. You can only choose one federal offset, but you can use that with state incentives and state offsets. So it's good.
[00:08:36] Caris Bizzaca OK. And can you get Screen Australia funding and the Producer Offset?
[00:08:40] Michele Mcdonald Yes, you can.
[00:08:42] Caris Bizzaca So you can get production funding and a Producer Offset, or development funding and the Producer Offset.
[00:08:45] Michele Mcdonald Yes, you can.
[00:08:46] Caris Bizzaca OK. And can you get Screen Australia funding, state agency funding, the Producer Offset and a state PDV Offset?
[00:08:52] Michele Mcdonald Yes, you can.
[00:08:54] Caris Bizzaca OK, great. And can Official Co-productions get Screen Australia funding and the Producer Offset?
[00:09:01] Michele Mcdonald Yes they can.
[00:09:02] Caris Bizzaca And do Official Co-productions automatically get the Producer Offset?
[00:09:06] Michele Mcdonald They're automatically eligible for the Producer Offset. Co-productions bypass the Significant Australian Content test, so they are eligible as an Australian film, but they still need to meet the other eligibility requirements such as be an eligible format [and] meet the minimum QAPE thresholds. So the only thing they don't have to meet is the SAC test.
[00:09:27] Caris Bizzaca OK. And that's because by being an Official Co-production - an Official Treaty Co-production - they are defined as an Australian film.
[00:09:35] Michele Mcdonald That's exactly right. Yeah.
[00:09:36] Caris Bizzaca OK. And is the Producer Offset competitive worldwide?
[00:09:41] Michele Mcdonald Yes, it is. Particularly the 40% for a theatrical feature film. But the key thing about the Producer Offset is that it is about films that have a Significant Australian Content. So it is different to the Location Offset, which is about inbound productions using Australia as a location. [The Producer Offset] really is about stimulating Australian production activity and bringing back Australian key creatives to work here in Australia. And it's about building sustainable businesses in Australia as well. So very, very different, I guess, remit to the Location Offset.
[00:10:14] Caris Bizzaca And what are some titles that have publicly acknowledged getting the Producer Offset?
[00:10:19] Michele Mcdonald Look there'd be a few. I actually honestly don't know. We in POCU world, we don't really talk about what does and doesn't get the offset. We don't track what is publicly announced. We think it is great when producers talk about what films got the offset. But in POCU world, we don't talk about what has and hasn't received it.
[00:10:41] Caris Bizzaca That's OK, because in Comms world we do track - well, research [the SPII Unit] does track.
[00:10:45] Michele Mcdonald I'm glad someone does-.
[00:10:47] Caris Bizzaca -so that we can talk about the ones that have publicly acknowledged it. So a couple off the top of my head. Peter Rabbit would be a big one. Hacksaw Ridge. The Great Gatsby. Mad Max: Fury Road. They're kind of some of the big ones. And so you work in POCU. We've said what POCU is - the Producer Offset and Co-production Unit - is it true that people in POCU work in a secret office within the Screen Australia building?
[00:11:13] Michele Mcdonald Well, it's not secret, but we are... there is a wall and we work behind the wall and all of our work is kept very separate to the rest of Screen Australia. But people know where we are. So it's not super secret.
[00:11:27] Caris Bizzaca It is one of those parts of the office where you do need to kind of go up to the door there and knock and make sure that you're allowed to [come in and ask] ‘can I chat, is anything...?’ It is kind of secretive in that way. But why so much secrecy?
[00:11:42] Michele Mcdonald Well, it's so much fun to think that we do operate under tax legislation. These are tax rebates and therefore tax secrecy provisions apply. So it really is, you know, we're dealing with people's tax information. So everything is just held in the strictest of confidence. And that's just what we need to do to be doing our jobs.
[00:12:03] Caris Bizzaca And that's why Comms can only talk about projects that have publicly acknowledged the Producer Offset, because otherwise we don't know if they have or not.
[00:12:10] Michele Mcdonald Exactly. And no matter how many gifts you buy us or things, we can never tell you, we can never tell you. But you can keep trying, Caris.
[00:12:19] Caris Bizzaca I'll keep buying you gifts (laughs) 'please, please'. Well, that has brought us to the end of all of our questions. Well, our short-.
[00:12:29] Michele Mcdonald Quick fire?
[00:12:31] Caris Bizzaca Our quick fire questions. Now, we'll get to the main talking points, now that we've gotten over the kind of Producer Offset 101. So what is the process of getting the Producer Offset? Do you need specialist accountants? Are you going to be dealing with a 40-page document and potential nervous breakdown? You know, what is the process?
[00:12:52] Michele Mcdonald So the process, I've just dive in at final certificate, is look we always recommend that people work with production accountants during their productions because one of the key things is that all of the expenditure is tracked and detailed and in your general ledger, line by line, in a very clear and transparent way. And, production accountants, that's what they do. So we really recommend that everyone has a production accountant and that ideally you're using a production software. You don't have to, but we just find that over the years, those programs have evolved into being quite QAPE-friendly and easy to pull reports off. But once you've made your film and you've spent your money and you've been through an audit and you come to apply for your final, you just go online - all of our applications are online. It is a lengthy document. I actually don't know how many pages it is, but it might be, I don't think it's 40, but it is a lengthy document. And it's just working through that document. The final certificate, there are a lot of attachments that include: your general ledger, which can be an excel or document that's thousands of lines long; a final cost report; you'll have your final QAPE spreadsheet, which is a document that we've designed here at Screen Australia to help you give us what we need to finalise your QAPE amount. So you work through all of that and you submit it to us in POCU and it will get allocated to an assessor and an assessor will go through it. And one of the fundamental things we do is we assess your claimed QAPE because that's what your offset's based on. So we'll either do that in-house for lower budget or more simple projects, or we'll send it out to an external assessor. And we have a pool of assessors we call independent film production consultants. IFPCs.
[00:14:50] Caris Bizzaca Another acronym. Of course.
[00:14:51] Michele Mcdonald Another acronym. And the IFPCs are people that we specially train: independent production managers, line producers, accountants, and they will just assess the QAPE and ask questions if there are any, and will do a report to us with their final recommendation. And once we've confirmed that all the other key eligibility criteria have been met, then Screen Australia will issue a final certificate that has a final QAPE amount on it. And that's then what applicants will submit to the ATO with their company tax return for the same financial year in which the film is finished. And then that goes through the ATO process. And because, as I said at beginning, it's a refundable tax offset. So the tax department will make sure the company doesn't have a tax debt and then a refund just automatically goes through to the company bank account. And that usually takes about 28 days and then that's the end of the cycle until the next one.
[00:15:47] Caris Bizzaca It seems like it's based a lot around timing of things? That you need to be strategic in a way with the timing?
[00:15:54] Michele Mcdonald Yeah, it's just good to know as you're going through the production, when your film is going to finish because the offset is paid in the income year that you complete your production and completion means when your final master is struck. So for a feature that's when your DCP is struck or, you know, if it's a television series it's when the last episode is ready. So it's really when post-production is all finished, everything's kind of put together and you have your [project] that could be reasonably shown to an audience. So that's what we call completion. So it isn't when the film is distributed or sent to your broadcaster, it's when it's completed. And one of the things you need to do at final is we ask applicants to send a letter from the post-production lab that tells us the date that they did that work. And then we're really clear on when the completion date is. But, you know, if that date is the 30th of May 2019 for instance, then you're in that 2018/19 tax year. And you should be talking to your company tax accountant and making sure they know that you've got an offset on the way and hopefully they've got your company accounts all ready to go. But once again, when you talk about timing, you've got to allow 12 weeks for us to assess it. And that's from a complete application. So we do spend a fair bit of time chasing materials from people. So if it's not all there, then it's not even actually going to be allocated. So 12 weeks from us. And then you've got to allow a month from the ATO before you're actually going to get the money back. And that's really important because for most people, they're borrowing against the rebate. So way back at provisional when they've done their budget and they've got their QAPE opinion, they will go and borrow against it and will be paying interest on that money.
[00:17:48] Caris Bizzaca And it can be quite high interest?
[00:17:50] Michele Mcdonald It can be high interest, particularly if you miscalculate, and then all of a sudden you're paying default interest. So most producers and production accountants would be across it these days. But just also being really clear on the timeline when you're budgeting to allow enough interest in your production budget to cover that interest rate.
[00:18:09] Caris Bizzaca Until you can get the Producer Offset. Until you can get that rebate.
[00:18:13] Michele Mcdonald Yep, yep. So you get the cash back and then you pay back your lender and then hopefully there's a bit left for you.
[00:18:19] Caris Bizzaca And passing the SAC test which before we said, was the Significant Australian content test-
[00:18:26] Michele Mcdonald Yes.
[00:18:28] Caris Bizzaca -What makes something an Australian story, if particularly from the outside, it doesn't look Australian at all?
[00:18:35] Michele Mcdonald So the SAC test, which is in our guidelines, you can have a look at.
[00:18:38] Caris Bizzaca Michele's currently looking through the Producer Offset guidelines (laughs).
[00:18:40] Michele Mcdonald I should know off by heart (laughs).
[00:18:44] Caris Bizzaca You mean you haven't memorised that entire document?
[00:18:46] Michele Mcdonald Yeah I sure have. So we do look at a number of things when we're looking at whether something has Australian content and these things are actually in the legislation. So once again, we haven't made them up. We're just administering what's there. So one of them is the subject matter of the film. But we also look at the development and the extent to which an Australian key creative has been involved in the development of the film. So if it's not Australian on screen, but there's been really heavy Australian involvement in the development, through an Australian writer or director or producer, then we just say that kind of helps balance out the fact that it's non-Australian on screen. But we're also looking at the place where the film is made. You know, the nationalities and places of residence of people who were making the film. And we say, you know, obviously the above the line cast and crew and the heads of department are really important in that. We look at where you're spending the money. So the details of the production expenditure, and any other matters - that's where we look at who owns the copyright, profit and recoupment, the extent to which Australians are involved in that and who has creative control. So all of that becomes the SAC test. And we look at all of those five elements. So if something is non-Australian on screen, but the producer can demonstrate that there's been a heavy involvement of Australian key creatives in the development, then that helps balance that element.
[00:20:11] Caris Bizzaca And if you want to get the 40%, which you can only get for feature films as we were saying before, does Cinema on Demand count as a theatrical release? Because one of the elements of getting that 40% is to have a theatrical release. Right?
[00:20:24] Michele Mcdonald Yep, yep. Correct. So the 40% is absolutely tied to a theatrical release in cinemas in Australia. And that is the traditional theatrical release. And the explanatory memorandum talks about that [being a] bona fide commercial release where a film is shown, [that] it’s a main attraction in a commercial cinema. So I guess we totally understand that the world has moved on a bit since then. But when this legislation was written 12 years ago, I guess it was very clear what a feature film was back then. So we are still absolutely tied to that more traditional release. So a Cinema on Demand release absolutely can be eligible. What the challenge can be under that model is when Screen Australia is being asked to assess that. So when we're looking at whether something's eligible for 40%, producers or applicants can ask us to look at the provisional certificate stage prior to a film being made, or at the final certificate stage. At the provisional certificate stage, we have a number of elements we look at when deciding whether something's 40% and that's about who is the distributor, their track record, what's the advance. It really comes down to the marketplace involvement; the track record of the people making the film; what does the finance plan look like. There's quite a number of elements, well, there's 10 elements that are in the guidelines. And so we assess all of that at provisional. Once again, this is prior to the film being made. And the challenge is, I guess, Screen Australia wanting to be really clear that it is being produced for the cinema because once we do approve it at provisional, we don't revisit that decision. Even if something were to happen, that the film wasn't released. So the bar is really high. And we do say that and a lot of applicants don't get approved at provisional for 40%. And in those cases, we can absolutely still issue a provisional certificate as a feature film. But you just need to demonstrate at final that once again it's produced for cinema. So the challenge for Cinema on Demand is just meeting those criteria in the guidelines. So often we see that model, you know, producers will come in and get a provisional at 20% and then they'll make the film. And once it's had a Cinema on Demand release, they can come in for final. And as long as they can demonstrate that there has been a genuine theatrical release, then they can get 40%.
[00:22:57] Caris Bizzaca And so you were saying before how, you know, a lot has changed since the Producer Offset was introduced in 2007. And one of the big things that has obviously changed in that time period is that the streamers have come in and they've really disrupted the landscape, not just in Australia, but around the world. But the Producer Offset was created before these existed. What does that mean for the Producer Offset?
[00:23:25] Michele Mcdonald Well, for the Producer Offset, if a producer is making a film for a streamer and it goes straight to that platform, then that project would be eligible for the 20%, even if it's a telemovie or a feature film, it really does have to have that theatrical release in Australia to get the 40%. So at the moment, they'd be getting 20%.
[00:23:47] Caris Bizzaca OK. And what was the recent change that the government made around streamers accessing the PDV?
[00:23:56] Michele Mcdonald Well, that's administered by the Department, so I can just give you my perspective, which is just very broadly speaking. From what I understand, there was a change in interpretation from their legislation about what television meant and that in their view, there was scope to broaden that interpretation to include streamers. So projects that are shown on those platforms can now access the PDV or the Location Offset.
[00:24:22] Caris Bizzaca OK. And I hear a lot about something called the Gallipoli Clause. Can you tell me a little bit about what that is, why it was introduced, and what it's for?
[00:24:33] Michele Mcdonald So the Gallipoli Clause is a provision in the legislation that is about some expenditure that can be claimed as QAPE, if you go and shoot overseas. And the reason it was introduced was really for the documentary sector or iconic Australian films. But for documentaries if you need to make a film about Gallipoli, then obviously you need to travel to Gallipoli and film there. You can't make that in Australia. I think another example in the explanatory memorandum is if you want to do a nature documentary about certain birds in Papua New Guinea, then you need to go there to film that. So the legislation does allow for some expenditure to be claimed. The conditions around that are if the subject matter reasonably requires the use of the location, and then if that's agreed then what applicants can claim is the cost of Australian resident crew only working in that location during shoot only, during principal photography. And really it is only about location shooting. So we talk to people a lot about going and shooting a feature overseas. And if we can see, well, yes, the subject matter reasonably requires the use of the location. It's not necessarily the fact that all of those costs will be QAPEable. It really is just exterior location shots that you just can't get in Australia. So it would be just a portion of that shooting that would be eligible as QAPE. So we always say it's a very, very narrow provision because it just goes against the policy of the offset, which is about attracting production in Australia. So once you go offshore, even if you've got Gallipoli, it just becomes very, very limited what you can claim.
[00:26:17] Caris Bizzaca Because it's still just a percentage of your production expenditure overseas?
[00:26:21] Michele Mcdonald Yeah, exactly.
[00:26:23] Caris Bizzaca OK. And why is Gallipoli Clause talked about so frequently then? Is it because drama titles have wanted to take advantage of the clause, for something that was created initially for documentaries.
[00:26:39] Michele Mcdonald Yeah it does come up a lot and I guess it's because, well, I think Australian creatives do want to tell international stories. And it's not just about filming kangaroos and koalas here in Australia. So we make stories all around the world, features and documentaries. And we just say absolutely those projects that we just talked about would have a strong claim against the SAC test. But once again, when it comes to the dollars you can then claim under the rebate, it just becomes very, very narrow.
[00:27:11] Caris Bizzaca And do you have any tips on making the process as easy and smooth as possible?
[00:27:19] Michele Mcdonald It sounds so boring, but it really is just answering all the questions and having all of the detail in the application form. So at the final certificate stage, what we say all these years later, 12 years later, is that one of the things that holds up applications is looking at general ledgers that just don't have the expenditure broken down in enough detail where there's lots of lump sums and it's just not clear what the money's been spent on. So what we want to see - and we do go through the general ledgers and we do look at the cost reports - is just that it's really, really clear and detailed so that somebody can come and look at it, who doesn't know anything about your production and it's just clear what happened. So that's probably the biggest tip. And I mean, at provisional certificate stage, we do look at a lot of applications and people wanting us to look at approving the 40%. And part of the assessment process for that is looking at the marketing plan or the pathway to audience. And I think the biggest tip around that is just having a really good think about the marketing plan and having it be really detailed and specific to the film and that the producer has worked on that with the distributor in question, because we just see a lot of, I guess, templates [and] very kind of standard marketing agreements. So that doesn't help when you're really pitching for that 40%.
[00:28:38] Caris Bizzaca Mm hmm. And excuse my lack of knowledge around production accounting. When you say general ledger - in layman's terms, in terms that I understand - what is a general ledger?
[00:28:51] Michele Mcdonald So a general ledger is literally a line-by-line account of all of the transactions that have been spent on the film. So it's just a breakdown of every single thing that the production spent money on.
[00:29:03] Caris Bizzaca Is it similar to a budget?
[00:29:04] Michele Mcdonald More detailed than a budget. So a budget is your first stage, with what you're planning to spend your money on and your general ledger is-.
[00:29:12] Caris Bizzaca What you actually spent money on?
[00:29:13] Michele Mcdonald Yep, yep.
[00:29:13] Caris Bizzaca OK, great.
[00:29:16] Michele Mcdonald It's the bible for us when we're assessing a final certificate. It is the bible.
[00:29:23] Caris Bizzaca It's the document that you refer to the most?
[00:29:25] Michele Mcdonald Yep. And production accountants, it's their bible too.
[00:29:28] Caris Bizzaca They'll agree.
[00:29:30] Michele Mcdonald I hope so.
[00:29:30] Caris Bizzaca And what are some mistakes that people commonly make, do you find? Or none, because they're all so great.
[00:29:40] Michele Mcdonald They're all so great. It's once again, if you're just looking at final [certificate], it's just having lump sums in the general ledger. We have what's called an interested party breakdown where applicants have to, any person or entity that's related to the applicant is what we call an interested party - that has an interest in the offset. There has to be really detailed breakdown of their costs so that we can assess that they're all charged at market rate and sometimes that's not a hundred percent clear. So we have to go back and ask for more details. Just paperwork not matching, I guess. So there might be a cost in the general ledger and then there's an invoice that's different to that cost. So that just raises a question, well which one's right?
[00:30:24] Caris Bizzaca Then you have to have a conversation and it can really hold things up.
[00:30:28] Michele Mcdonald Yeah, so that just triggers questions, I guess. I think it's just having just really clear and detailed paperwork that all matches and it can be overwhelming for producers, we do understand that. But sorry-.
[00:30:45] Caris Bizzaca You empathise, but also-.
[00:30:49] Michele Mcdonald -we're talking about a lot of money sometimes.
[00:30:51] Caris Bizzaca And you said charging at market rate. So I thought that this was maybe a good point to talk about some of the issues that you're seeing crop up because there was a story that was on the Screen News website last year, I believe, about reinvestments. Can you tell me a little bit more about about that or some other issues that are cropping up?
[00:31:12] Michele Mcdonald I mean reinvestments are when basically somebody is paid a fee for their services and they then choose to invest a portion of that fee or all of that fee back into the production. Usually as an equity investor. And that structure's fine as long as the expenditure is incurred and that investment is done correctly and this is where, you know, you'd probably need to see your own film lawyer to make sure that that is all done correctly. That's a totally legitimate structure. But reinvestments or parties that reinvest become an interested party for us. And therefore, we do just assess that what they're paid and more importantly, what is claimed as QAPE, is an arm's length rate or a market rate. And look, that comes up for us a fair bit at final [certificate]. And we just then, we talk to the applicant and ask for substantiation, and reasons behind why they've budgeted a certain figure. And the best way to substantiate that is by providing third party quotes from providers who provide similar services. And in instances where we feel a fee is above market rate, we will determine QAPE at what we think is the market rate, which is, usually a little bit less. So that comes up a lot for us. But I feel like we're always having conversations with the applicant about it. It's not like there are any surprises. But I think it's just really important for people to know if you are reinvesting, just being mindful that what you're claiming needs to be at what we call a 'fair market rate'.
[00:32:44] Caris Bizzaca So it's not the actual reinvestment of fees that's the issue there, whether it's a producer or a director or whoever might be reinvesting their fees. That's not the problem. It's more the amount that may or may not be at market rate that you're needing to assess, because then by reinvesting their fees, they become an interested party and then they become part of that document that you need to analyse.
[00:33:09] Michele Mcdonald Yes, exactly. And we're always saying, look you can actually pay people what you like or you can charge what you like. We're not commenting on your budget or anything. We're just assessing QAPE. And as part of that, like there is an arm's length provision in the legislation where it does say we do need to do that.
[00:33:29] Caris Bizzaca So if they pay people a higher amount, then that's OK. But the part that is actual QAPEable budget within that is-.
[00:33:39] Michele Mcdonald -is your market rate. Yep, absolutely. And then the other thing just that pops up from time to time is just people asking well if I pay an Australian company for these services, but then we send a portion of that offshore, is that still QAPE because it's paid through an Australian company? And the answer to that is no - the goods and services do need to be provided in Australia to be QAPE as well. So it does happen a lot with VFX or post [where] you can send a portion of it offshore if you need to. Once again, that will feed into your SAC test, but you can do that. But you just need to exclude that portion from QAPE.
[00:34:19] Caris Bizzaca OK. And just as a refresher, because we've been talking about QAPE so much, QAPE is Qualifying Australian Production Expenditure. And it's basically the portion of the budget that you can claim with the Producer Offset.
[00:34:35] Michele Mcdonald Exactly. So that's what your rebate is based on. So you either as a non-feature would get a 20% rebate of your QAPE, or for a feature film you get 40% of QAPE. So that's why we use it so much - that's what your rebate's based on.
[00:34:51] Caris Bizzaca And you were talking a little bit about VFX just then. There was a new statement that was released recently about PDV. What was that? And then why was it released?
[00:35:01] Michele Mcdonald Yeah. Well, we've just added to our final certificate application form, just a format letter of representation that applicants need to provide from their post houses or visual effects houses or animation companies who worked on the film. And just to confirm that all of the work took place in Australia or if not, what portion didn't. And we then just obviously confirm that that portion hasn't been claimed as QAPE. And look, nothing's changed there. It's always been the case. We just thought we'd make it a 100% clear that that's the expectation around it. And also, this is how the Department administers the PDV Offset. It's a requirement for them. So we're just aligning with what they do. But I guess it's just making it clear how we're assessing it, really.
[00:35:47] Caris Bizzaca And so final thoughts, if you could name three things to remember about the Producer Offset, what would they be?
[00:35:57] Michele Mcdonald I think my three things are detail, detail, detail. It's so simple.
[00:36:09] Caris Bizzaca I feel like that's cheating.
[00:36:09] Michele Mcdonald Do you think it's cheating? Ok, if I have to expand, it's a good general ledger. It's understanding that when you send in an application, we don't know what you know about the production. So it's just making it really clear what happened. And a lot of people will include a cover letter with their application saying, 'this was an overage for this reason. It rained, it hailed. We had to go over'. So we don't know what you know. And questions will come up and not to panic. And the best thing to do is to have someone who's managing your application that can answer questions really quickly. We actually do spend time where an assessor will send a question and it might be weeks until we get an answer. So don't panic. Just get back to us as soon as you can. Questions come up quite a lot.
[00:36:57] Caris Bizzaca Because you're assessing an application.
[00:36:59] Michele Mcdonald Yeah, exactly. So there were three things. There you go.
[00:37:05] Caris Bizzaca That was great. Well, that brings us to the end of our chat about the Producer Offset. But thank you so much for chatting to us today and giving us a bit more of an understanding about what the Producer Offset and what POCU is.
[00:37:19] Michele Mcdonald And I feel like if you're still listening, you deserve a prize and if you're still awake (laughs).
[00:37:23] Caris Bizzaca Oh, hey, hey! Don't sell yourself short! (laughs) Yes. Well, you can contact Michele for your prize. And thanks again for joining us.
[00:37:35] Michele Mcdonald Thank you.
[00:37:37] Caris Bizzaca That was Michele Mcdonald from Screen Australia. And a big thanks to her for taking the time to talk on the podcast. Remember to subscribe to the Screen Australia newsletter for all the latest Australian industry updates. And thanks for listening.