Tax sword falls on Cruise film set

By LOUISA CLEAVE

Inland Revenue has hit The Last Samurai movie production with a surprise tax midway through filming.

The $170 million project starring Tom Cruise has been told it should have deducted tax from allowances paid to production crew and actors working on the Taranaki shoot.

The decision and its timing have shocked the American producers and stunned the New Zealand screen production industry, where the allowances have been tax-free for at least 25 years.

The industry is not opposed to taxing the payments but is angry about a lack of consultation and fear the ruling sends mixed signals to international film-makers considering New Zealand as a location.

Samurai Productions alerted industry groups after Inland Revenue advised it that daily payments and accommodation allowances should be treated as taxable income. The tax office refuses to say how much is involved but the sum runs into tens of thousands of dollars.

The tax would apply to local production crew and actors, international actors and on-screen performers, but not international crew.

More than 200 New Zealanders are part of The Last Samurai production crew and receive an extra $800-plus a week in allowances.

Hundreds of acting extras are entitled to a daily allowance when working.

The tax issue flared up a day after Prime Minister Helen Clark met Cruise on set and said the big-budget movie and the actor's presence would give the economy a boost.

Helen Clark, who described Cruise as a "very attractive young man", said this week: "We can't underestimate how good it is to have people with that kind of reputation saying 'I had the most fantastic time in New Zealand'."

The tax move also comes a week before the Government releases a major report on how to develop and increase revenue in the local screen production industry. Inland Revenue would not comment on the Samurai Productions case last night but a spokeswoman said it would be "working through tax issues" with the screen production industry early next week.

Samurai Productions has handed over the matter to the New Zealand Film and Video Technicians Guild, which represents production crew.

Guild spokesman David Madigan said Samurai Productions asked Inland Revenue about tax rules well before filming started but was not told about taxing the allowances until the shoot was under way.

"They can't budget if they don't know what the tax rules are.

"We're trying to promote an industry here to the world and if government policy is not consistent it's very hard for production companies."

Mr Madigan wrote to Revenue Minister Michael Cullen on January 30 requesting that IRD defer imposing the tax on New Zealand crew members until after the industry could discuss the matter.

The tax was put on hold the following day.

A spokeswoman for Dr Cullen said the Deputy Prime Minister had received the letter and it had been passed to IRD for a draft response.

Jane Wrightson, head of the Screen Production and Development Association, said the tax regime could have an "inflationary impact" on production budgets.

It was not unreasonable to tax the payments but she was concerned that the ruling was made after filming started.

Taxing issues

* The screen production industry - film, television and commercials - was worth $923 million in the year to March 2001, and topped $1 billion the previous year.

* Actors and production crew employed in the industry have for the past 25 years received tax-free allowances.

* The daily allowance is usually between $50 and $75 and covers meals, laundry, travel and incidentals. The accommodation allowance varies between productions, although The Last Samurai is paying its crew $500 a week for accommodation.