Australia's competitive appeal as a location for offshore productions, threatened last year when tax breaks were denied to investors in Red Planet and Moulin Rouge, is set to be restored following the Government's establishment of a new scheme regulating the "refundable tax offset".

Australia's Government has held its ground on some points but yielded to intense lobbying on others in setting up its new scheme for attracting runaway production. The legislation regulating the "refundable tax offset" will be introduced into Parliament any day and is expected to be operational by June 30.

The initiative, promised last September, will provide the certainty necessary to attract more big budget productions - after last year's controversy surrounding Moulin Rouge threatened to divert offshore production cash to countries such as Canada and Ireland.

"I understand the US studios always made it clear to Government that a viable scheme would require them getting back 9% - 12% of their total budget and that's what they have got," said Ian Robertson, board member of marketing body AusFILM. "Providing they stick to the rules, they'll get 9%." (ie. 12.5% of 70% of the budget).

Producers will get a 12.5% refund on Australian expenditure only. But with conditions that between A$15m and A$50m must be spent locally, and that the sum must comprise at least 70% of the total budget, consultations have covered both how Australian expenditure and how the total budget is defined. Spend over A$50m locally and the 70% rule does not apply.

Concerning Australian expenditure, the shift in emphasis away from costs incurred and salaries paid in Australia, towards an activity test requiring services to be rendered or goods supplied in Australia, is tougher than first proposed and should prevent subcontracting offshore. The initial idea of excluding the two highest paid individuals from the total budget, however, has been relaxed.

"We assumed it would make it easier for producers to make their 70% Australian spend requirement," said taskforce general manager Megan Morris in an e-mail to industry members she has been consulting with. "However, it became apparent that the exclusion of the two highest paid personnel would considerably reduce the value of the offset to the point where it would not be an effective incentive."

Australian expenditure could include studio and location costs, post-production and sound synchronisation expenses, and wardrobe and construction. But subsidising studio executives or specialist practitioners in Australia for less than two weeks is off limits in claims.

Furthermore, costs associated with financing, and deferments and residuals, cannot be included in the total budget. Unless incurred in Australia, neither can publicity or development costs or unassociated business overheads. In all cases, exchange rates will be averaged over the period of production.

Telemovies, miniseries and features are eligible to apply for the incentive upon completion. The Government has neatly side-stepped calls to include episodic television and lower budget films, and to allow bundling. The Minister may consider an extension of the initiative, said Morris, but only via fully costed and detailed proposals.

The incentive is open to Australian production, but realistically few local budgets are expected meet the expenditure requirements.