The Australian government has announced the most fundamental structural and financing shake-up of Australian film for nearly 20 years.

As expected, and as proposed by the industry itself, a tax rebate is to be introduced for producers from July 1 this year. It will allow filmmakers to claim back 40% of what they spend in Australia to make a film, and 20% in the case of documentary and television.

Investors will no longer be able to use Division 10BA of the tax act to get deductions on their investments, which they have been doing for nearly 30 years. This is very bad news for those producers who have managed to attract 10BA investment.

While it will be abolished from July 1, when the rebate arrives, films currently using Division 10BA will be regarded as exceptions.

As part of its annual budget announcements, the government has also confirmed the merger of investment agency Film Finance Corporation Australia (FFC), development agency, the Australian Film Commission (AFC), and documentary production house Film Australia into a new super-agency. They will have until July 1, 2008 to reassemble themselves into the resultant Australian Screen Authority (ASA).

The budget of the ASA, going into the future, will reflect the take-up of the rebate, which is expected to become the main funding source for commercial films. The ASA will have a marketing, development and cultural role; the expectation is that it will fund low-budget films and those with national cultural significance.

The AFC's research and statistical function will move to the Australian Film, Television and Radio School.

The government has also announced a lifting of the tax offset for offshore production from the current 12.5% to 15% and, in what they say is a world first, it is to allow films only doing post or digital work in Australia to also claim the offset. Previously this has not been possible.

The minimum spend for post or digital only work is A$5m (US$4.1m). The new rebate for local films is based on the tax offset for offshore films which has been in place since 2001.

The substance of the announcement is not a surprise but there are many questions around whether the rebate for local films will do what is hoped: namely to encourage investors to support production companies rather than one-off films as has been the case up to now. Getting more private money into the industry is seen as vital if it is to grow.

In a statement released tonight, Australia time, FFC chief executive Brian Rosen said he was confident in the ability of Australian producers to expand on the funding opportunities available and to make a greater range of films here and internationally.