In brief
On 14 February 2025 the Future Made in Australia (Production Tax Credits and Other Measures) Act 2025 was given Royal Assent paving the way for Australia’s Critical Minerals Production Tax Incentive (CMPTI) and Hydrogen Production Tax Incentive (HPTI).
As previously explained in our Tax Alert of 1 July 2024, Production Tax Incentives for Critical Minerals and Renewable Hydrogen - Consultation papers released, the CMPTI will provide eligible entities with a 10% refundable tax offset for eligible expenditure, incurred for the processing and refining of specific critical minerals listed in the legislation and that may be prescribed critical by regulation. Notably, the final legislation was amended to include a specific exclusion for Uranium such that it cannot be regulated to be considered a critical mineral for the purposes of the incentive in the future. Other potentially ‘critical’ minerals to energy transition (e.g. copper) are not currently included on the prescribed list but are not expressly carved out. Eligible expenditure to which the refundable offset will be applied will exclude the costs of the raw materials (feedstock), capital costs, depreciation costs and financing costs.
The HPTI provides eligible renewable hydrogen production facilities with AU$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.
In detail
The Australian Government’s Future made in Australia agenda (as announced in the 2024-25 Federal Budget in May 2024) set out a framework for the CMPTI and the HPTI. These tax incentives will be delivered via Australia’s income tax law and are now legislated in Division 419 (CMPTI) and Division 421 (HPTI) in the Income Tax Assessment Act 1997.
The application of both the CMPTI and the HPTI must also have regard to the community benefit principles (within the meaning of subsection 10(3) of the Future Made in Australia Act 2024), which are broad and notably include having regard to demonstrating transparency and compliance with the management of tax affairs. Further rules can also be set by the Minister.
Australia’s taxation general anti-avoidance rules contained in Part IVA of the Income Tax Assessment Act 1936 will also apply such that the CMPTI and HPTI are considered a tax benefit for the purposes of the Part IVA rules.
Critical Minerals Production Tax Incentive (CMPTI)
The CMPTI is a refundable tax offset for eligible entities that process and refine any of the 31 minerals prescribed in the enacted legislation and currently included on the Australian Government’s Critical Minerals list. The incentive available is a 10% refundable tax offset, calculated by reference to eligible expenditure (broadly processing activities), with no maximum claimable amount. The 2024-25 Federal Budget estimated the CMPTI to be valued at AU$7bn for the next decade.
A company is entitled to the CMPTI for an income year if it meets the following requirements:
- it is a constitutional corporation (therefore intentionally carving out all other taxpayer forms, such as trusts and partnerships)
- the income year starts on or after 1 July 2027 and ends on or before 30 June 2040
- it carries out one or more CMPTI processing activities for which it is registered within the income year
- it incurred CMPTI expenditure for the income year through carrying out one or more of these processing activities
- it is not an exempt entity
- if rules implementing the community benefit principles for the CMPTI apply to the company for that income year – the company meets the conditions specified in those rules, and
- it satisfies the relevant residency requirements during the income year.
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 ‘Registered CMPTI processing’ expenditure. An activity will be a registered CMPTI processing activity for a company if the activity is registered for (or transferred to) the company and the registration is in force for the company and the income year. For an activity to become a registered CMPTI processing activity for a company, the company will need to apply to the Industry Secretary, in the approved form, to register the relevant activities.
CMPTI processing activities should broadly be considered processing activities carried on at one or more facilities in Australia that:
- involve substantially transforming a feedstock that contains a critical mineral through extractive metallurgical processing into a purer or more refined form of the critical mineral that is chemically distinct from the feedstock, or
- are specified in regulations as producing an outcome in relation to one or more critical minerals.
The above considerations are provided that a substantial purpose in carrying on the activity is to produce the transformed critical mineral or achieve the specified outcome. Certain activities, including mining activities and beneficiation are excluded from being CMPTI processing activities.
The Explanatory Memorandum (EM) to the amending Bill confirms that ‘An activity is not a general statement of a company’s purpose in undertaking processing (‘the production of lithium hydroxide from spodumene’) or vague description of the metallurgical processes being used. Instead, what is registered is the specific processing activity being described, based on a detailed outlined of what processes are being undertaken and the facilities at which they are being carried out.’ (see paragraph 2.53 of the EM).
The expenditure must be incurred (based on the Australian tax principles of ‘incurred’) in the income year the CMPTI is claimed. The expenditure must also not be ‘excluded expenditure’, which includes:
- expenditure that is capital, or capital in nature (based on Australian tax law principles)
- depreciation or the amounts calculated for the decline in value of an asset (based on Australian tax law principles)
- expenditure related to financing activities
- expenditure on Feedstock (excluding reagents and catalysts)
- expenditure in relation to intellectual property, and
- expenditure otherwise excluded by regulations.
The expenditure is also subject to several integrity rules, such as those related to the intra-group mark-ups and ensuring all costs are incurred at an arm’s length. Specifically, expenditure on obtaining goods or services from a ‘group entity’ will be disregarded for the purposes of the CMPTI to the extent it exceeds the actual cost to the group entity of providing those goods and services. The CMPTI is 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 HPTI is 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.
According to the EM to the amending Bill, to be eligible for the HPTI in an income year, a company must, broadly:
- be a constitutional corporation that is subject to tax in Australia (this limitation therefore intentionally carves out other taxpayer forms, such as trusts and partnerships)
- hold the production profile (within the meaning of the Future Made in Australia (Guarantee of Origin) Act 2024) under which the hydrogen was produced, allowing it to issue the PGO certificate (short for Product Guarantee of Origin certificate) for the hydrogen, and
- have complied with the rules implementing the community benefit principles for the HPTI made by the Treasurer.
The HPTI is as a refundable tax offset of AU$2 per kilogram of eligible hydrogen, produced in eligible facilities, for up to ten years. 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.
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.
The legislation also confirms that companies should not benefit under both the HPTI and the existing Hydrogen HeadStart program. Therefore, to manage the interaction between the two incentives, payments made to companies under the Hydrogen Headstart program will be proportionally reduced by ARENA to reflect any amount of the hydrogen production tax offset that a company has received.
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
Both the CMPTI and HPTI 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.
Simon McKenna
Ryan Jones
Matt Budge
James O'Reilly
Partner, QLD Tax Leader, Brisbane, PwC Australia
Sophia Varelas
PwC | Private | National Leader - R&D and Government Incentives, Melbourne, PwC Australia
+61 417 208 230
Amanda Gell
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