On larger productions, and especially on Producer Offset projects, it is common to set up a new company, called a Special Purpose Vehicle (or “SPV”), to make the film, including incurring its expenses. For more information on SPVs, please see our blog “Using Special Purpose Vehicles for filmmaking in Australia”.
Depending on whether you have an SPV, and the timing of expenses, spending money on a film can take several forms:
Scenario 1 – Normal operations
The production accountant can pay invoices and payroll directly from the SPV’s bank account.
Scenario 2 – Advances
Crew can be given an advance to acquit by submitting invoices and receipts.
Scenario 3 – Expense claims
Crew can spend their own money and submit an expense claim.
Scenario 4 – Development expenses
The production company may incur development expenses before the SPV is set up.
Scenario 5 – Ongoing expenses paid by the production company
During production, the production company may pay an invoice and on-charge the expense to the SPV producing the film.
Each of these has its own unique accounting issues, so it’s worth discussing the process, especially in relation to GST.
Let’s run through the different scenarios listed above:
Scenario 1 – Normal operations
The production accountant will receive an invoice. Once authorised for payment, it will be paid and then reconciled in the SPV’s accounting system. GST will be noted if applicable. Similarly, payroll will be prepared in the accounting system and paid. These are the normal operations during a production.
Scenario 2 – Advances
It is common on productions for certain crew members to receive a cash advance from the production, also known as Petty Cash. The crew member will then purchase items required for the film. They will then complete a Petty Cash Acquittal form, noting the GST on purchases, and showing where the money was spent. Any money not spent is returned to the production.
Scenario 3 – Expense claims
Although less common, sometimes a crew member will pay for a film expense and then submit an expense claim to be reimbursed. This is normally for a time-sensitive purchase. The Expense Claim form is similar to the Petty Cash Acquittal form, in that each purchase is noted, described, the expense account and GST noted on the form.
Scenario 4 – Development expenses
Prior to an SPV being setup when a production is greenlit, certain expenses are incurred by the production company. For example, these may be for research, writers’ fees, budget and schedule preparation etc. These invoices need to be invoiced to the SPV once it is set up. Note the invoice from the production company must have GST on it if the company is registered for GST, even if the original payment did not have GST on it.
Also note that it is the expense net of GST that is charged to the SPV, otherwise when you add GST, you are charging GST on GST, which is not correct.
Scenario 5 – Ongoing expenses paid by the production company
Sometimes, and mostly for cash flow reasons, an invoice for the SPV may be invoiced to and paid by the production company. Similar to Scenario 4, this expense needs to be invoiced down to the SPV.
The other situation is where the production company pays for an invoice addressed to the SPV. This is not a great situation, as the production company has paid an invoice which is not in their name. In this situation the production company should submit an expense claim, the same as an individual would, as it has paid an expense on behalf of another company, and would be reimbursed.
In conclusion
Correctly managing expense claims and GST on-charging is important, especially in film production, where financial structures can be complex due to the use of SPVs.
Keep clear records and correctly account for GST so you don’t make a costly mistake that can impact your finances.
At Above The Line Accounting, we specialise in SPVs and getting them set up correctly, including for the Producer’s Offset.
We’d love to help you ensure your SPV is set up correctly, and manage your expenses efficiently – so you can focus on telling captivating stories.
Feel free to contact us for a free consultation call to discuss how we can help your production company ensure its film finances are sorted.
A note on this articleInformation provided by Above the Line Accounting on this website is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice.