Not everything about new tax breaks for the Australian film industry is appealing. While it caters for blockbusters, some believe low-budget filmmakers have been neglected.
By Michael Laurence
Clayton Jacobson comes straight to the point about how he and his brother Shane found the money to make their hit film Kenny: 'It was made with excrement', plus a big boost from the now-defunct Division 10BA tax regime.
The Jacobson brothers somehow managed to persuade Glenn Preusker, owner of the portable toilet rental business, Splashdown, to solely finance their movie. While Shane starred as Kenny, Clayton was the director, writer and co-producer, and Preusker had a walk-on role as Kenny's boss.
Clayton Jacobson readily agrees that Kenny would have been ineligible for the new producer tax offset that has been progressively taking over from 10BA tax deductions since its legislation gained royal assent last September. Some films with expectations of 10BA deductions would still be nearing completion.
Australian feature films are only eligible for the producer tax offset if their so-called 'qualifying Australian production expenditure' is at least $1 million, leaving no specialised film tax breaks for features under this threshold.
The producer offset allows for a 40 per cent tax offset of qualifying expenditure for a feature film that has 'significant Australian content'. Qualifying expenditure is that incurred during the making of the film, but does not include the cost of financing, insurance and marketing.
Jacobson says Kenny cost $400,000 - $500,000 to shoot, and other costs took the total budget to $700,000 by the time the film reached the cinemas. Then, Kenny hit the big-time, taking close to $8 million at the box office. Although this might sound like a lot of money, because of the costs involved in filmmaking, any financial rewards for the makers of Kenny will flow from DVD rentals.
Jacobson hasn't seen the total DVD returns to date, but Kenny has just been named the third most-rented DVD of 2007, behind George Miller's Happy Feet and the ABC television series Summer Heights High. 'I don't quite understand why there is a floor [or minimum dollar threshold] on the producer offset,' says Jacobson. 'But the truth of it is that we would have made Kenny by hook or by crook.' This would be regardless of any tax relief. 'That's what you do when you make your first film.'
The Jacobson brothers would probably be bemused that although Kenny would have missed out on the producer offset, the Baz Luhrmann blockbuster Australia is a casebook example of a film that would appear to easily make the grade.
Australia, starring Nicole Kidman and Hugh Jackman, reportedly has a $100 million budget. It is due for release in November.
Antonia Barnard, outgoing manager of the producer offset scheme at the Film Finance Corporation (FFC), says Luhrmann's Australia provides an excellent example of the type of film that would be expected to be eligible for the producer offset. 'It's an all-Australian film, with a budget over $1 million, using an all-Australian cast, using an all-Australian story,' she explains.
'The big thing about this producer offset is that applicants have to pass the significant Australian content.'
With its cast also including the likes of Jack Thompson and Bill Hunter, Australia is set in northern Australia before the Second World War. Given the confidentiality of the tax system, Barnard could not say whether Luhrmann had applied for the producer offset.
Barnard, who is returning to her career as a film producer, was involved in the production of The Quiet American and The Painted Veil. Alex Sangston, who was involved in the policy development for the producer offset and advised on the drafting of its legislation, has taken her place at the FFC.
No relief for 'credit-card' films
What Barnard describes as very low-budget, 'credit-card' films aren't dealt with in the new legislation.
She explains the phenomenon of the credit-card film: 'Quite a lot of films do that. Kids would go out and get as much as they can. Their dad and their dad's best friend would invest anything up to $10,000. They would invest their $10,000 and get a tax refund, that's how 10BA worked. But there's nothing like that any more.'
Andrew L Urban, publisher and editor of the online movie magazine Urban Cinefile, is among those who are clearly disturbed that low-budget films appear to have been left out in the cold in the revisions to the tax incentives for Australian films.
'The producer offset is intended to lift production values and the sustainability of [filmmakers'] businesses, and it certainly looks after the bigger-budget films very well,' Urban says. 'But the combination of the scrapping of 10BA, as well as limiting budgets, for eligibility to the producer offset, is really unnecessarily harsh on the low-budget filmmaker. That's the point.
'It's not just that the producer offset is not available to them, it's that you can't even go out to your family and say, 'Give me 10 grand and take it off your tax.' So it's really absolutely screwing the emerging filmmakers. And so many low-budget films have come which are fresh and valuable.'
Urban succinctly summarises the position for low-budget filmmakers: 'They get zilch.'
He names The Jammed as an example of a recent Australian film that would have been left without government tax assistance under the producer offset had it been made today. The Jammed, the story of illegal prostitution and human trafficking, cost a reported $600,000 and has been highly acclaimed since its release last August. It was named as best feature film at the 2007 Inside Film Awards.
Urban's concerns regarding certain aspects of the new tax regime extends to documentaries and television productions. Under the producer offset scheme, television productions, which Urban describes as the 'cradle of the screen production industry', are entitled to offsets of 20 per cent of qualifying expenditure. The same 20 per cent offset applies to eligible documentaries.
'There seems to be no rationale articulated for this level of offset,' he says.
Why do feature films get a 40 per cent offset whereas documentaries and television productions get 20 per cent? 'The government policy didn't explain it,' Urban says.
Realistic fees Urban and Barnard agree that the producer offset is without doubt a means for eligible producers to be more reasonably rewarded. In order for their films to come within the minimum threshold, some producers may increase their fees to a fairer level.
'It is up to the producer to set his fee,' Urban says. 'And a producer's fee should realistically reimburse them for not only the time spent on the production, but the time before and after production.'
Antonia Barnard makes it clear that she is not advocating that producers over-inflate fees to come within the thresholds. 'Frequently in the film industry, in order to get a film going, producers will defer their fees,' she explains. 'And other parties will do so as well.
'But it's not worth doing that now because if the producer can get the producer offset, there is no point in throwing fees away, and also throwing away possibly qualifying for the producer offset.
'There are two issues here: one is to reach the threshold and the other is not to have to defer your fees. It is about firming up the budget itself to be able to make the film.'
Bigger stakes
A central aim of the legislation is to help filmmakers create viable film-production businesses. And Barnard is optimistic the producer offset will enable more producers to be left with the biggest stakes in their films rather than surrendering all or much of their equity in order to get them made.
She gives a simplified fictional example. In the past a filmmaker may have applied to the Film Finance Corporation (FFC) to provide, say, 50 per cent of a film's budget in return for a 50 per cent stake.
'Now you can get, say, 25 per cent of the budget from the producer offset [which is not for the whole of a film's budget but for what may be the qualifying expenditure, depending on the circumstances] and 25 per cent from the FFC.' The money from the offset may belong to the filmmaker as equity. If a film is successful, higher returns are likely to flow into the producers' own pockets.
Urban says the aim of producers being able to create viable film businesses goes to the heart of the motives behind the introduction of the producer offset. 'There is absolutely no question that the legislation was very well intended,' he says. 'This is the first piece of government legislation supporting film production that acknowledges that it is an industry and not just a national knitting club.
'[But] I think 10BA should have been retained, and I think it could have been improved. It is particularly useful for low-budget filmmaking.'
Many in the film industry agree with Urban that tax breaks need to be provided specifically for low-budget productions.
Cash flow funding
As reported by Urban, Cinefile, the makers of Prime Mover, an Australian trucking movie, recently became the first filmmakers to convince a lender to provide a loan based on a so-called provisional certificate from the Film Finance Corporation indicating that the producer offset would be granted upon completion of the film, provided all the requirements were met. At the time of writing, the filming of Prime Mover was due to begin in Dubbo, New South Wales.
Other filmmakers are given the option of applying for a provisional certificate before completion of their films. And, once the film is completed and evidence can be provided of distribution, an application is made for a mandatory final certificate. Applications, if successful, would contain the details of a film's financing.
Barnard indicates that a filmmaker who receives a provisional certificate should be confident of eventually gaining the offset 'as long as they make the film in accordance with the information they supplied' when gaining the provisional certificate. And she believes that a provisional certificate will eventually become a very valuable means for convincing lenders to provide money to make the films.
Tough business
Clayton Jacobson says that filmmaking is a tough business, even after the necessary money is raised. It took four and half years to get the Kenny project off the ground and into the cinemas.
'But we were able to make enough from the theatre release [excluding DVD rentals] to pay the investor back, and to pay the crew and actors,' he says. 'That's very rare for a film like Kenny that is made for next to nothing.
'And it has opened up doors for us to make a TV series [shortly due for release at the time of writing].'
Preusker, Kenny's financial backer, doesn't want to make another film because he has found filmmaking such hard going, according to Jacobson. But his portable toilet rental business has benefited from growing demands for its services. And the film has turned out to be a great morale booster for his staff.
'His crew members are now treated like celebrities.'
The offset rundown
Feature films
Offset: 40 per cent of qualifying Australian production expenditure.
Minimum qualifying expenditure: $1 million.
Documentaries (30 minutes minimum)
Offset: 20 per cent of qualifying Australian production expenditure.
Average minimum qualifying expenditure: $250,000 an hour.
Telemovies
Offset: 20 per cent of qualifying Australian production expenditure.
Minimum qualifying expenditure: $1 million (and average minimum of $800,000 an hour). Threshold and hourly minimum must be met.
TV drama series or season
Offset: 20 per cent of qualifying Australian production expenditure.
Minimum qualifying expenditure: $1 million (and average minimum of $500,000 an hour). Threshold and hourly minimum must be met.
Short-form animation (15 minutes minimum)
Offset: 20 per cent of qualifying Australian production expenditure.
Minimum qualifying expenditure: $250,000.
Tax and film funding: in the mood for Hong Kong movies
Think of a Hong Kong movie star and the high kicking, sideways-grinning Jackie Chan is likely to be the first to come to mind. But the kung fu blockbusters synonymous with Hong Kong and Asian film have slowly lost their impact, and recently, their funding appeal.
This is despite there still being a place (albeit smaller) for the action-heavy, dialogue-light genre on the global entertainment scene.
Yet at the same time as funding for such high-jinks blockbusters has slowed, a more intelligent sensibility has gradually started bringing in overseas investment. Asian mood pieces, gritty, real-life dramas and love stories are increasingly attracting funding for the arthouse-friendly marketplace.
'The heyday of Hong Kong cinema was in the 1970s in the Jackie Chan days, and in the 1980s when the economies in Southeast Asia were booming,' says Ivy Ho, deputy director of the Asian Film Awards and Hong Kong's Asian Film Financing Forum (HAF).
'The joke at the time was that the films didn't even need a script to get funding. But around 1997, when the [Asian] economy started to collapse and piracy became a big problem, the models of the past no longer worked.'
Ho adds that the funding then dried up 'very rapidly', and at the same time Hong Kong actors and directors such as John Woo and Michelle Yeoh caught the eyes of the West. Previously, there was enough film financing for 10 to 20 projects a year, and this couldn't be sustained. But interestingly enough, in the late 90s, other styles of Asian films started to get attention at film awards in Asia and Europe.
These included City of Sadness by Taiwanese director Hao Hsiao Hsi, and In the Mood for Love by Wong Kar Wai. 'So a lot of arthouse was doing quite well in the West, but not in Asia,' Ho says.
'However, it meant that different styles of films were becoming what was considered "commercial".'
In response to this shift, in 2000 the HAF was created, modelled on European film financing and festival groups. Funding was supplied by the Hong Kong Film Directors' Guild and the Hong Kong Trade Development Council (HKTDC), with additional support from the Hong Kong government. 'The days of a two-page synopsis to get your financing were over,' Ho says.
HAF looked at what was done in the West, and has since attracted funding from groups such as Standard Chartered, which has a creative industry department.
Popular films such as Lust, Caution are an example of the new breed of Asian films the HAF has established on the world entertainment scene through such big business funding. 'I would say funding has been rising since 2007,' says Ho. 'We started the Entertainment Expo with the HKTDC, and that has been very attractive to financiers and buyers from overseas.'
Finance for Asian films frequently comes from European countries such as Italy, Germany and France, which Ho attributes to such markets having large audiences passionate about arthouse films.
The HAF now has a mix of arthouse films and more commercial blockbusters, with a budget range of US$50,000 to US$10 million.
For example, a Korean 'western', The Good, the Bad and the Weird, is one of several Asian selections (thanks to the HAF) that were part of the Cannes Film Festival official selection this year.
'This is a good year for Cannes, but we also have a lot at Venice and other festivals,' says Ho.
Ho says Hong Kong's solid legal and financial base is reassuring for many overseas investors partnering with the HAF to fund Hong Kong and mainland-based movies. China-based funding authorities are generally more cautious about the potential financial risk involved in filmmaking.
It's another example of Hong Kong's ability to remodel what it does best to suit demand. And whether it's the disposable chop-sockey antics of Messrs Chan and Li, or the more challenging fare offering appeal for the film festival set, there will always be a market for movies. 'People will still look for entertainment, even if the economy is sliding,' Ho says.
