When you’re involved in production you need to be comfortable with a range of accounting terms and business structures. None more so than ‘Special Purpose Vehicle’.
No, it’s not a car.
If you’ve ever asked, ‘what is a Special Purpose Vehicle and do I need one for my next production?’ then this resource is for you.
What is it?
A Special Purpose Vehicle, or SPV, is a business entity, normally a company, set up specifically for your production.
It keeps a single project (and all of the business associated with that project) separate from other business entities, such as the main production company.
The structure isn’t unique to the film industry (a quick Google will pull lots of results related to Property Development) but it is very useful in this setting.
It’s recommended that you set up an SPV if you are looking to utilise the Producer Tax Offset, especially in cases where you are looking to borrow against it (cashflow the offset).
Why set one up?
An SPV helps you control risk and improve record management. Under an SPV you can manage all business operations for a production in a single place.
One advantage is that invoicing for certain items is more clear-cut because the SPV and the main production company are two separate legal entities. The SPV might pay the main production company for overheads, producers fees or other expenses. This keeps the costs of your production clear and segregated from other expenses.
It also isolates your rebate (the Producer Tax Offset) from the parent production company’s other tax liabilities. A lender would have no way of determining if a production company has some undetermined tax liability from previous operations. As the Producers Offset first goes to repay any existing tax liability, setting up a SPV protects the lender so that they can have confidence that they will be repaid by the Producers Offset
Another reason a SPV is recommended if you are looking to access the Producer Tax Offset is that you can clearly ‘wind-up’ the entity at the end of the production, leaving no loose ends. This clarity in bookkeeping takes some of the pain out of the process of applying for the Producer Tax Offset.
This ability to wind up a SPV can also assist in receiving the Producers Offset earlier. For example, if the production is ready to deliver in July, then in the normal course of events, you would need to wait up to 12 months to lodge the tax return, delaying the receipt of the producers offset. If you wind up the company, you can do a final tax return upon liquidation, which could be much earlier. This is especially important if you have borrowed against the Producers Offset, and are paying interest.
What happens when the production is finished?
The Producer Tax Offset comes back into the SPV as a tax rebate. Often there are outstanding invoices or loans that can be paid/repaid, however if there isnt, there can be an issue of getting the rebate out of the SPV so that you can make use of it. You can read more in our article on common production funding options.
We’ve also prepared a checklist of things you should consider to get your Producer Tax Offset funds out of your SPV.
Understanding and setting up the correct business entities seems complex, but it doesn’t have to be. In the Australian production industry, good planning is the key to good financial management.
We invite you to contact us if you have any questions or concerns about the business structure of your next production.
A note on this article
Information 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.