Taking a leaf out of film-friendly tax laws in countries such as Canada, Ireland and the UK, Australia has taken a first step towards film-specific legislation providing a clear-cut pathway for local taxpayers to invest in offshore films shooting in Australia.

Australians, in theory at least, can invest in such films now by getting certification under a section of the Income Tax Act known as 10B. However, over the past two years producers and studios have become increasingly unsettled by the aggressive stance of the Australian Tax Office towards film investment of any kind, a stance which has greatly discouraging potential investors.

A source within the government has confirmed that Prime Minister John Howard has agreed to Senator Richard Alston, the Minister of Communication, Information Technology and the Arts, presenting a submission to Cabinet on the matter. This may be in the form of amendments to 10B or a new package of incentives, although care would be taken to ensure it was not seen as favouring offshore over local production.

"I am convinced that without some clarification, which probably means new legislation, Australia will not continue to get a flow of offshore work," said producer Andrew Mason, who used 10B for The Matrix, which shot in Sydney in early 1998. "There does not seem to be much enthusiasm for increasing direct government subsidy to the film industry, so we have got to get private investors in."

A recent confidential report by AusFILM, the organisation that markets Australia's production talents, notes that Australia's tax measures are not functioning effectively. In the case of State Government incentives, tax rules are seen as uncompetitive when compared to other production centres such as the UK, Canada and Ireland.