The Hobbit racks up $20m in tax rebates

Prime Minister John Key is shown the interior of a 'hobbit house' by director Sir Peter Jackson, during a recent visit to the set of the 'The Hobbit'. Photo / Alan Gibson

The production company for Peter Jackson's The Hobbit racked up $20.2 million for its tax rebate in the first actual year of production, according to its financial statements.

The movie, produced by Warner Bros Entertainment' subsidiary 3 Foot 7, recognised the subsidy as part of its $70.9 million annual revenue in the 12 months ended March 31, according to statements lodged with the Companies Office last week.

The bulk of revenue was a fee to fellow subsidiary New Line Productions for production services, though that won't be recognised until the production is wrapped up.

The $20.2 million rebate amounts to 14.4 percent of the $140.6 million annual production cost, just below the 15 per cent of locally incurred costs that can be claimed back in tax under the Large Budget Screen Production Grant, known as the qualifying New Zealand production expenditure.

Though the entire project is expected to cost about US$500 million to produce, the total tax rebate may be NZ$50 million to $60 million below the maximum possible rebate of US$75 million, according to media reports.

The period captures pre-production work last year and a couple of months of filming, which kicked off in March this year.

The two-movie project has suffered several delays, including funding woes from MGM, first-choice director Guillermo del Toro quitting and producer Peter Jackson taking over, a threatened actors' boycott, and surgery for Jackson.

Funding for The Hobbit became a political football last year after actors threatened to strike and Warner Bros countered by threatening to film the movie elsewhere.

Prime Minister John Key stepped in to broker a deal with Warner Bros US executives who flew into New Zealand, giving them an extra subsidy of $9.75 million per movie for spending more than $200 million, expanding what spending qualifies for the rebate under the existing rules, and changing employment law to classify all film workers as contractors by default.

The government would also stump up US$10 million to market local tourism as part of The Hobbit's release.

Last week, Jackson announced Wellington will host the world premiere of the first Hobbit film when Prime Minister Key dropped into the set as part of his election campaign. The same day the opposition promised to repeal the changes to employment law passed for the production.

In December last year, Jackson's Weta Digital was awarded $7.2 million over three years under the government's Technology Development Grant Programme. Weta will be a major contributor to the digital special effects for the two movies, having previously worked on blockbusters including James Cameron's Avatar and Jackson's Lord of the Rings trilogy.