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Production Tax Incentives for Critical Minerals and Renewable Hydrogen - Consultation papers released
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  • 7 minute read
  • July 01, 2024

Consultation papers on the Government’s recently announced Critical Minerals Production Tax Incentive and Hydrogen Production Tax Incentive have been released. 

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1 July 2024

In Brief

On 28 June 2024, the Treasury released consultation papers in relation to each of the proposed tax incentives measures for the refining and processing of critical minerals and the production of renewable hydrogen in Australia, as recently announced as part of the Government’s Future Made in Australia agenda. 

The Critical Minerals Production Tax Incentive (CMPTI) proposes to provide eligible entities with a 10 per cent refundable tax offset for eligible expenditure, incurred for the processing and refining of specific critical minerals (31 different minerals in total). Eligible expenditure will exclude the costs of the raw materials, depreciation costs and financing costs.

The Hydrogen Production Tax Incentive (HPTI) proposes to provide eligible renewable hydrogen production facilities with a $2 per kilogram refundable tax offset for every kilogram of eligible hydrogen produced. This refundable tax offset will be available in respect of hydrogen produced from eligible facilities for up to 10 years, commencing from 1 July 2027 through to 30 June 2040.

The Treasury seeks feedback from stakeholders on each of the consultation papers issued for the CMPTI and HPTI. Feedback will inform advice to government on the final design and administration arrangements for each of the measures. The consultation period is short and closes on 12 July 2024. 

In Detail

The Australian Government’s Future made in Australia agenda (as announced in the 2024-25 Federal Budget in May 2024) sets out to address some of the major structural and strategic challenges that the Australian economy currently faces. These challenges include attracting and enabling investment in value adding priority industries and increasing Australia’s renewable energy capabilities. The proposed new production tax incentives aim to provide support for investment in critical minerals processing and renewable hydrogen.

The Treasury consultation papers provide further information about the basic features of each of these production tax incentives as well as seek feedback on the proposed design and administration details and questions outlined in the papers.

Critical Minerals Production Tax Incentive (CMPTI)

The proposed CMPTI will be a refundable tax offset for eligible entities that process and refine any of the 31 minerals on the Australian Government's Critical Minerals list in Australia (noting that any changes to this list do not automatically bring that mineral into the CMPTI). The incentive is proposed as a 10% refundable tax offset, calculated by reference to eligible expenditure, with no maximum claimable amount. The 2024-25 Federal Budget estimated the CMPTI to be valued at A$7 billion for the next decade. 

To be eligible to claim the CMPTI, taxpayers must be corporations that are subject to Australian income tax during the period (this limitation therefore may carve out other taxpayer forms, such as trusts and partnerships). For the avoidance of doubt, the activities remain subject to foreign investment approvals (if applicable). Additionally, companies must have taken a final investment decision (or have already started production) by no later than 1 July 2030 in respect of each eligible facility. The eligible facility must be located in Australia and the critical mineral processing and refinement can be from an existing facility or an entirely new development. Processing and refinement eligibility does not depend on the end use of the output, including whether it is used domestically or exported.

The 10% refundable tax offset will be applied to eligible processing expenditure. Eligible processing expenditure is proposed to include the direct costs of processing and refining the specific eligible mineral to the specified eligible output. Specified eligible outputs will be defined in regulations based on the National Interest Framework and the Critical Minerals Strategy and must meet certain purity levels or standards. 

Examples of eligible processing expenditure include reagents and other consumables, labour, utilities, maintenance, logistics and transport. Eligible expenditure will not include indirect costs or costs that are incurred regardless of the level of processing, such as product marketing, financing costs, capital works and depreciation.

The CMPTI will be available in respect of eligible expenditure incurred from first production, for up to 10 years. First production must be between the period starting 1 July 2027 and 30 June 2040.

Hydrogen Production Tax Incentive (HPTI)

The proposed HPTI will be a refundable tax offset for eligible producers of renewable hydrogen. To be considered renewable hydrogen under the HPTI, each kilogram of hydrogen must be produced with an emissions intensity of less than 0.6kg of carbon dioxide equivalent, measured up to the production gate. Importantly, hydrogen produced for either domestic use or export is proposed to be eligible for the HPTI. 

The HPTI is proposed as a refundable tax offset of A$2 per kilogram of eligible hydrogen, produced in eligible facilities, for up to ten years. There is no proposed cap to the HPTI and is estimated to cost the Government A$6.7 billion. 

The HPTI will be delivered through the tax system and will rely on the verification of hydrogen production volumes and emissions intensity through the Guarantee of Origin scheme, administered by the Australian Clean Energy Regulator.

Similar to the CMPTI, eligible taxpayers must be corporations (this limitation therefore may carve out other taxpayer forms, such as trusts and partnerships) that are subject to Australian income tax during the period. To be eligible, a final investment decision must have been made, or production commenced, by no later than 1 July 2030 in respect of each eligible facility. For the avoidance of doubt, the investments remain subject to foreign investment approvals (if applicable). Broader eligibility requirements (which align with the Future Made in Australia Community Benefit Principles) will also be established as part of accessing the HPTI.

Eligible facilities must be located in Australia and meet the minimum capacity (equivalent to at least a 10 megawatt (MW) electrolyser) and emissions intensity thresholds.

The Takeaway

Parties seeking to respond to the consultation paper should note the short timeframe to respond, with responses due by 12 July 2024. 

Both the Critical Minerals Production Tax Incentive and Hydrogen Production Tax Incentive form key parts of the Australian Government’s Future Made in Australia framework. These measures bare similarities to other global initiatives aimed at incentivising the production of renewable hydrogen and strengthening value-add activities in more traditional extraction-based economies. 

Businesses who are active (or seeking to be active) in the Australian energy and resources sectors should consider how these incentives may impact and potentially strengthen the business case for investment in Australian hydrogen and critical minerals. In particular, the CMPTI may strengthen the business case for new entrants into the domestic downstream refining and processing of Australia’s critical minerals, noting that there is no requirement under the CMPTI for the end-output product to be utilised in Australia. 

Contact us

If you would like to further discuss this alert, reach out to our team or your PwC adviser.

Simon McKenna

Australian Mining Tax Leader, PwC Australia

+61 0411 030013

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Ryan Jones

Australian Energy Tax Leader, Perth, PwC Australia

+61 407 984 967

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Matt Budge

Partner, Perth, PwC Australia

+61 8 9238 3382

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James O'Reilly

Partner, Brisbane Tax Leader & Global Energy, Utilities and Mining Tax Leader, Brisbane, PwC Australia

+61 421 288 623

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Mark Crossman

Partner, PwC Australia

+61 8 9238 3018

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Sophia Varelas

Private National Leader, R&D and Government Incentives, Melbourne, PwC Australia

+61 417 208 230

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Amanda Gell

PwC | Private | Partner - R&D Tax, Perth, PwC Australia

+61 8 9238 3515

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