Timing is everything for producer offset claims and liquidation

How do insolvency specialists best assist the film and TV production industry? It’s all in the timing says Jirsch Sutherland Partner Bradd Morelli. Bradd has worked with this sector for a number of years helping it avoid any cash-flow complications that may arise around producer tax offsets.

He says while investment in the film production industry has increased as a result of the Australian Tax Office producer offset, the move has also created a problem.

Bradd Morelli
Bradd Morelli

“The government’s ATO producer offset has encouraged a substantial increase in productions in Australia. In the first five years of the scheme, feature film production increased by 70 per cent and television drama by 36 per cent,” explains Bradd. “However, many producers are faced with the complexity of finalising their offset claims earlier than the end of the tax year because of the timing of the principal photography and post-production.”

The timing is an issue as the offset is only paid after the production is fully completed and the relevant documentation from Screen Australia is in hand.

“A production that finishes before the end of the tax year means producers have to wait until the year-end taxation lodgement. For those with cash flow stress and interest-bearing bridging finance to pay, having to wait those extra months is often difficult,” Bradd says.

The perfect strategy can be the early liquidation of a special purpose vehicle (SPV), he adds. These vehicles are set up wholly to manage a single production and are usually opened as a subsidiary of a larger production holding company. Bradd says they not only offer secure funding for a production, but also a clear pathway to closing the timing gap and bringing forward payment.

“From the moment a production company sets up a finance plan, factoring in a liquidation of its SPV can mean the difference between having cash-flow complications and being able to move on to its next project quickly,” he says.

The process of resolving the offset earlier in the tax year requires liquidating the company in a members’ voluntary liquidation, which can present substantial legal paperwork and accounting hurdles that are usually easily solved by professionals who specialise in SPV liquidation.

“The ATO has to be convinced that the taxpayer will not accrue any additional taxable income in that financial year,” says Bradd.

“SPV company directors also need to sign a solvency declaration to assure the ATO that the company can pay off all its debts within 12 months of receiving the funds. Penalties apply for a misleading or unsubstantiated declaration.”

Once this statement is signed, a tax return is lodged, and after processing, the production holding company receives the money and pays any bridging loans as soon as possible. The remainder of the ATO producer offset is then folded into the holding company, and used for company cash flow and providing seed money for the next production.

The importance of timing

Timing is crucial to keep the holding company in the black and with less debt, Bradd adds.

“If your SPV is finished in the latter half of the year – before January – voluntary liquidation is an effective way to retrieve your offset funds more quickly,” he says. “Once you have your final offset certificate from Screen Australia, and your completed tax return, the liquidator will take over to facilitate the release of the funds.

“From the moment you start your finance plan, factoring in a liquidation of your SPV can mean the difference between having cash flow complications and being able to move on to your next project quickly.”

Jirsch Sutherland is the firm of choice for several major accounting firms that undertake this specialist work, with Bradd assisting in a number of well-known productions such as The Cup, Redfern Now, Sucker, Upper Middle Bogan and Oranges and Sunshine.