Screen Australia is spending millions to stop filmmakers accessing funds. Why?

At the Toronto Film Festival in 2015, English film producer Phil Hunt met a senior executive at Screen Australia. And according to Hunt – who claims to have invested many millions of dollars in more than 100 Australian films, mostly low-budget, since 2007 – the true import of their conversation has only just become apparent.

“It was on the ninth floor of the Hyatt, on the 11th of September, at 3pm,” says Hunt, who has both meticulous note-keeping habits and good reason to remember the specifics.

“I sat down with [the executive], and he said, ‘Now look, Phil, you lend a lot of money to these low-budget films, and we don’t like it. We think they’re taking advantage of the system, and the offset was not built for them’.”

This masthead has chosen not to name the executive, and they have declined to respond to questions for this story.

English producer Phil Hunt.

Last month in the Administrative Appeals Tribunal (AAT), Hunt lost an appeal against Screen Australia’s refusal to facilitate funding for a film he had backed, a $900,000 thriller called Fragmentary.

That decision meant the production missed out on an expected rebate of $340,000 through the producer offset, and Hunt spent close to the same again in legal fees. And, he argues, it will have a chilling effect on independent production in this country.

“There’s a lot of producers and filmmakers who are now really concerned, and a couple I’ve spoken to who are now not even going to try to get their films off the ground,” he says.

“It will kneecap the independent film sector, for sure. But I think this decision will have a dramatic effect on the future of Australian film full stop, not just independents. It will become absolutely harder for Australian filmmakers to grow and get out there on the world stage.”

The Producer Tax Offset afforded under section 376 of the Taxation Act is a rebate through which filmmakers can claim a tax refund of up to 40 per cent of the cost of making a film. It is, according to an explanatory memorandum to the Act published in 2021, “the government’s primary mechanism for supporting the Australian screen industry”.

As the country’s peak government agency for supporting TV, film, digital games and online screen content, Screen Australia has a range of funding programs in which its officers can and do make subjective assessments of a project’s commercial, industrial or artistic worth. But it also administers the offset on behalf of the tax office, in a role that is, by its own definition, meant to be value-free.

Jace Pickard directs himself on the set of his film Fragmentary.

“Screen Australia is responsible for ensuring that final certificates [which allow the rebate to flow] are only issued in accordance with the legislation,” a spokesperson for the agency said in a written response to questions from this masthead. “Screen Australia has no discretion to depart from the statutory requirements.”

Yet that is precisely what some in the industry are convinced it is doing – favouring projects in which it has a financial stake at the expense of those in which it does not. And as a result, some small independent producers claim they are being pushed to, and sometimes over, the brink.

Screen Australia denies all allegations of favouritism in the administration of the offset. “Each application is assessed on its merits and purely against legislative criteria by highly trained and experienced assessors,” the agency says. “Screen Australia does not have the ability to alter or depart from the Act.”

Several producers, who spoke to this masthead on the condition of anonymity for fear of being forever ruled out of the funding system, have accused Screen Australia of “threatening and bullying treatment”, use of intimidatory tactics, lengthy delays, expensive legal battles, and a lack of transparency as the agency seeks to tighten access to the scheme.

“Screen Australia cherry-picks their favourite projects; they subjectively apply different standards to their own projects and independent projects,” says one producer who has gone to war with the agency. “Even then, they are not consistent from project to project.”

“They’ve done a lot of legal game playing,” says another, who claims to have spent six months responding to queries from the agency. “They’ve reopened a whole lot of issues they had already looked into thoroughly, threatened to take back money we’ve already got. They make dozens and dozens of these crazy claims, and we, as the applicant, have to address them. That draws out the process and makes it more and more uneconomical for the applicant to fight.”

“There are two aspects to this,” says a third. “One is the lack of transparency. The other really is how they treat their own projects versus independent producers’ projects. There’s a wide disparity in the oversight and how much of a microscope they put on them.”

Though it is impossible to prove there has been a shift in how the offset is administered, some in the industry who believe it to be the case suggest it is in response to pressure from Treasury to reduce the amount of money going out the door to filmmakers.

The scrutiny appears to have increased, one producer notes, since 2021, when changes to the offset increased the rebate for television and non-theatrical films from 20 per cent to 30. The offset for theatrically released films – deemed an endangered species, and thus most in need of support – remained at 40 per cent.

Treasury rightly predicted this would lead to an upsurge in the amount of money being paid out. But while the cost of the offset has almost doubled over the past five years (from $208 million in 2018–19, the last full year before the impact of COVID-19, to $413 million in 2023–24), most of that growth has been due to the increase in big-budget television productions such as the Netflix series Boy Swallows Universe, not film.

Prior to COVID, TV accounted for 36 per cent of the offset spend; now, it accounts for 55 per cent.

“They’re picking what they believe to be easy targets, small films, instead of going after where the increase has actually happened, to make it look like they’re taking action so they can keep Treasury happy,” says one producer who has found their project under intense scrutiny.

Screen Australia denies there has been any shift in policy or a sudden crackdown on the offset. However, its own figures show a sharp increase in cases at the AAT, where filmmakers can appeal against a decision to deny a final certificate or to grant one for a significantly reduced amount.

Bryan Brown (centre) along with Lee Tiger Halley and Felix Cameron in Boy Swallows Universe.

Between 2011 and 2019 just three offset-related cases went to the tribunal. But since 2020, 17 cases have gone there. Screen Australia says eight cases are currently “on foot” (still open) in the tribunal.

The agency has spent millions on these cases. Documents tabled to the Senate reveal that $2.15 million was allocated to Simpsons Solicitors in 2023 for its work on behalf of Screen Australia at the AAT. The agency has allocated at least another $300,000 to legal fees since the start of this year. (The agency points out that these sums “encompass multi-year contracts”.)

According to one experienced film lawyer, the decisions that make it to the tribunal are just the tip of the iceberg. “For every case that actually gets to the AAT, I’d say there are five or six more where people are furious with the outcome but haven’t gone to court,” they say.

Usually, disputes over the offset play out in darkness because of tax secrecy provisions. But the Fragmentary case – whose transcripts and 2000-page court book this masthead has examined in detail – offers a rare glimpse into the stakes, the battle lines, and the tactics deployed by both sides.

Across three sitting days in July, the agency was represented in the AAT in Sydney by seven lawyers, three from within its own ranks and four – including a senior counsel, a barrister and two solicitors – external.

The amount in dispute was $343,068. But one party on the Fragmentary side claims the agency “would have spent in excess of $1 million” fighting the producers’ claimed rebate. (Screen Australia says it “does not disclose information about its external legal fees as this information is commercial-in-confidence”.)

The Fragmentary team had assembled a battery of expert witnesses from the industry – producers, lawyers, equipment hirers – in support of its case. Many more watched on in court or remotely. “Even though this is a small budget,” lawyer Therese Catanzariti, for Fragmentary Pty Ltd, told the tribunal, “and this is a small film in the scheme of things – it’s not Furiosa, it’s not Happy Feet – it is still an important case of principle across the industry.”

(George Miller’s Furiosa: A Mad Max Saga is reputedly the most expensive local production yet made in this country, with a budget of around $250 million. It received the offset. Precise figures are confidential, but a 40 per cent rebate on the reported budget would amount to $100 million. The film also qualified for state government incentives likely worth another 10 per cent.)

Fragmentary started as a microbudget production but ended up as a low-budget one – and that discrepancy was at the heart of Screen Australia’s concern that something was not quite right.

It began in 2016 when wannabe filmmaker Jace Pickard wrote a screenplay for a psychological thriller. In February 2017, he launched a crowdfunding campaign to make the movie, and by April of that year, he began filming it on weekends and whenever time allowed. The projected budget was $10,000.

In May 2019, Pickard registered the company Fragmentary Pty Ltd, known in the business as a special-purpose vehicle created specifically as an entity through which to funnel the costs and revenues associated with a film. A couple of weeks later, the company applied for a provisional certificate for the producer offset, and the following month, Screen Australia granted it.

Chris Hemsworth almost steals the show as gang leader Dementus in Furiosa: A Mad Max Saga.

The provisional certificate is a crucial part of the Australian filmmaker’s toolkit. It effectively functions as a promissory note against which producers can borrow to make their movies. Almost never does it not lead to a final certificate (Screen Australia says it has issued more than 2000 provisional certificates since its launch in 2007, and only eight times has that not led to a final certificate.)

“If you follow what’s set out in the provisional certificate, then you’ll get the final certificate,” Catanzariti told the tribunal. “That’s a lynchpin of this industry because people are committing millions of dollars … for the film to be cash-flowed [in expectation] the 40 per cent production offset [is] to be paid.”

Receiving a provisional certificate allowed Pickard to line up finance to take the film to the next level, with investors including Phil Hunt and former Secret Life of Us actor Spencer McLaren providing loans and/or services in kind to polish Fragmentary.

But when the final paperwork was lodged in November 2019, with a budget of just over $900,000, alarm bells rang at Screen Australia. How, the agency’s assessors wondered, did a $10,000 movie end up costing 90 times that much?

The answer, the producers argued, was that everything done up until May 2019 was just preliminary work. The real business of making the film – getting it ready to be shown in public (it had a handful of cinema screenings in 2020, though its release was hampered by COVID) and sold for broadcast (it can be viewed on Prime Video) – came after that, and was carried out by a new entity.

Cast and crew were paid (at the lower end of industry-standard rates, the producers argued, and the experts generally concurred), the sound and image quality were improved, and the film was substantially re-edited. Pickard was “paid” roughly $165,000 for writing, producing, directing and starring in the movie, though he claims virtually all of that was reinvested in the film.

There is nothing wrong, one experienced film lawyer told this masthead, with someone selling work they have done for cut-price rates (or free) to a buyer for market rates. But Screen Australia’s external assessor disagreed, arguing the fees paid to Pickard were “in excess of the arms’ length or market rate given his lack of expertise and prior professional practice in the roles”.

Across the board, the assessor argued the rates charged by entities related to the producers – such as post-production facilities and camera hire – were above market rates (not so, expert witnesses testified) or out of line for such an inexperienced team and ad-hoc production. In response, Catanzariti claimed in court that the fees Screen Australia proposed as reasonable “were beneath what you would be paid for working in McDonald’s, below minimum wage”.

A clear sticking point in the case – and many others, according to producers and lawyers this masthead has spoken to – is “related-party transactions”. These involve producers who run multipronged businesses through which they might provide camera equipment, editing services or post-production effects to their own productions.

The rules stipulate these must be done at market rates, but are otherwise allowable. But some producers believe Screen Australia is showing signs of an in-principle objection to them.

That’s how people start. No one gives a first-time filmmaker a large budget.

Producer Phil Hunt

The agency also has an issue with reinvestment, wherein a fee “paid” for a service does not necessarily produce a cash transaction for that amount. Though this is standard practice in the industry, the producers and lawyers believe the agency has a fundamental objection, seeing it as a way of inflating budgets and potentially defrauding the system.

In the assessor’s opinion, the final cost of producing Fragmentary should have been considerably less than the figure claimed and certainly below the $500,000 threshold for access to the offset. On that basis, a final certificate was denied.

Fragmentary was not the first so-called credit card film to be picked up by an established producer, polished and taken to market; the most famous example – albeit not an Australian one – is Robert Rodriguez’s debut film El Mariachi (1992). Although it was famously shot for $7225, by the time it was released to the public, its true cost was at least $US200,000 ($296,000) more than that.

Documentaries regularly enter production on an ad hoc basis and only later become fully fledged productions. The Fragmentary team argued that this was what happened in this case; Screen Australia rejected that argument, and so, ultimately, did the tribunal in a decision handed down on September 18.

That decision, argues Hunt, will have a chilling effect on the financing of movies in this country. “I see it as being detrimental to Australian film because Screen Australia’s paperwork cannot be relied upon anymore,” he says.

Hunt sees low-budget filmmaking as a critical part of the greater ecosystem. “That’s how people start,” says the 57-year-old Englishman. “No one gives a first-time filmmaker a large budget. I started with a £48,736 movie.”

Sometimes, investors make a killing. Hunt’s companies had a stake in the breakout horror hit Talk To Me, made by Adelaide’s Philippou brothers for $US4.5 million and grossing more than $US92 million worldwide last year. But more often, they don’t.

“I’ve lost millions on Australian film,” Hunt says. “But I love Australia as a country. I love the culture. I’ve got family in Sydney. Australian people are really easy to do business with. There are all these wonderful reasons why I want to continue doing business in Australia, but Screen Australia is making it very difficult.”

Despite the agency’s claim that there has been no shift in policy, one of its own senior staff members appears to have confirmed increased scrutiny of the offset in an email sent in June 2020 to lawyer Janine Pearce for the Fragmentary filmmakers.

“As we have said,” wrote the staff member, “the Board and Producer Offset Committee have been asking … as a matter of practice to request greater substantiation of claims made in producer offset applications.”

Scrutiny of how public money is spent is, of course, entirely reasonable.

As former CEO Graeme Mason said on a Screen Australia podcast in 2022, “The producer offset is an essential thing for the sector here. We’ve got to treat it with unbelievable respect and especially, it’s the ATO’s money.”

With Australian cinema continually struggling to prove its right to exist, it’s not hard to see why the agency might not be wild about money being diverted to a low-budget genre film unlikely ever to be seen by many people.

The question, though, is whether the supposedly value-free administration of the offset is the right forum to address those concerns.

“If you look at the cases before the AAT, they’re all independently financed films; there’s nothing that’s got Screen Australia money,” says one producer who has been through the process. “They may argue that’s because they make sure their productions are better managed, but there’s no way of verifying that. There’s no way of validating that because it all happens in secrecy.

“Where there’s legitimate evidence to suggest fraudulent behaviour is going on, then absolutely I will vocally support them going after it,” the producer adds. “But that’s just not the case, certainly with our production.”

And nor, insists Hunt, is it with his.

“This is not some tax dodge,” he says of Fragmentary. “This is a real movie.”

Find out the next TV, streaming series and movies to add to your must-sees. Get The Watchlist delivered every Thursday.