Australian films 'in jeopardy'

Moulin Rouge has been a success in Australia

Australia's appeal as a cheap and affordable film location is in jeopardy after an Australian Tax Office (ATO) ruling, according to trade newspaper Daily Variety.

The ATO refused tax breaks for Australians who invested in musical Moulin Rouge.

Normally, under section 10B of the Tax Act, investors can contribute to between 20% and 30% of the film's budget, borrowing the rest from banks.

They can then claim the amount of the entire investment as a tax write-off.

The ATO's decision may have serious implications for several films which recently completed filming in Australia, including the live-action Scooby Doo and Queen of the Damned, the sequel to Interview With the Vampire.

Films made in Australia to take advantage of the cost effective production facilities and section 10B include Dark City and The Matrix.

Warner Brothers had planned to exploit the 10B section for the two Matrix sequels, currently in production.

Write-off

Lateline, an Australian television programme, declared that the ATO had refused a product ruling for Moulin Rouge which means the Australian investors who funded the $53m (£37m) film are now not entitled to a tax deduction.

A spokesman for the investors said they might appeal.

The Matrix was a cost-effective production in Australia

"We believe the ATO has deliberately or otherwise misinterpreted the law,'' he told Daily Variety. The funds raised have been held in abeyance.

An earlier ruling against Red Planet, starring Val Kilmer, prompted calls from the film industry for the Australian Government to dispel the confusion over using the division 10B tax break.

The government's communications minister, Richard Alston, announced a review of tax rules for offshore production.

However, the ongoing review will not have any bearing on the Moulin Rouge ruling.

Moulin Rouge broke box office records on its release in Australia.

The film, set in 19th Century Paris but with a modern pop soundtrack, took in A$3.6m (£1.3m) over the weekend of 24 to 27 May.