Rocking Renewable Energy: The Critical Minerals Production Tax Incentive

The Australian Government announced the Critical Minerals Production Tax Incentive (CMPTI) under the 2024-25 Budget as part of the Future Made in Australia package. The Future Made in Australia package aims to build a stronger, more diversified and resilient economy.¹ Underscoring this strategy is the Government’s desire to speed up the renewable energy transition and to reach Australia’s goal of net zero greenhouse gas emissions by 2050.²

The CMPTI proposes a short-term and uncapped production tax offset to support investment in critical minerals processing valued at AU$7 billion over 10 years.³ We recently wrote a similar on the Hydrogen Production Tax Incentive (HPTI), which, together with the CMPTI, complements the Government’s work to accelerate investment in Future Made in Australia priority industries. The CMPTI is also consistent with the Government’s Critical Mineral Strategy which we have discussed in a previous article here.

The consultation periods for both the HPTI and the CMPTI have now closed and Treasury will incorporate feedback from submissions in their advice to the Government on the final measures.

This article outlines the key details of the CMPTI as proposed in the consultation materials and what other information industry proponents need to know about the CMPTI.

The Incentive⁴

The CMPTI will:

1. be delivered through Australia’s tax system as a refundable offset for eligible expenditure incurred in processing and refining critical minerals;
2. be provided in the form of either a cash refund or a reduced income tax liability;
3. be available in respect of each facility for up to 10 years in respect of eligible expenses incurred from 1 July 2027 to 30 June 2040;
4. allow eligible entities to claim 10 per cent of eligible expenditure for processing and refining of any of the 31 Critical Minerals listed on the Department of Industry, Science and Resources’ (DISR) website;
5. be uncapped;
6. be co-administered by the DISR and the Australian Taxation Office, with technical mineral testing support from Geoscience Australia; and
7. include eligibility criteria that align with the Community Benefits Principles under the Future Made in Australia Act, focusing on investment in local communities (including First Nations communities), domestic industry and supply chains, skills, and the promotion of diverse workforces, secure jobs and tax transparency.

What You Need to Know

Tax Offsets 101: How Do Tax Offsets Actually Work?

Tax offsets are provided for a variety of reasons, including to incentivise individuals and businesses to engage in activities that boost the economy, to provide financial assistance and to help support emerging industries.

Tax offsets reduce the amount of tax owed by a taxpayer (as compared to tax deductions, which seek to reduce the amount of income that is subject to tax). Tax offsets can either be refundable or non-refundable. In the case of the CMPTI, the relevant tax offset is proposed to be a refundable tax offset, which means that a taxpayer can receive a cash refund if the tax offsets delivered through the CMPTI exceed the taxpayer’s tax liability. In contrast, for a non-refundable tax offset, if a taxpayer’s offsets exceed their tax liability, the taxpayer’s tax liability would simply be reduced to nil and no cash refund would be available (although it may be possible to carry forward the offset to a future income year).

As with all tax offsets, it will be important for entities involved in critical mineral processing to understand the eligibility criteria of the CMPTI (and any documentation or substantiation requirements) to ensure that the CMPTI is being claimed appropriately, and that processing entities do not inadvertently miss out on the availability of a tax offset.

Eligibility for the CMPTI⁵

To be eligible for the CMPTI, it is proposed the following key criteria must be satisfied:

1. the critical minerals entity must be a corporation that is subject to Australian income tax throughout the relevant income year (it must not be a corporation that is fully exempt from paying Australian income tax);
2. the facilities must be located in Australia;
3. the final investment decision for each eligible facility must be completed on or before 30 June 2030 (or production must commence by 30 June 2030);
4. critical mineral processing must be from an existing facility or a new deployment;
5. the processing must be of a critical mineral from Australia’s Critical Minerals list;
6. processing activities must meet certain specifications based on the nature and composition of the outputs of processing;
7. expenditure must be the direct costs of processing and refining the specific eligible mineral to the specified output; and
8. expenditure must be at arm’s length and on commercial terms.

 Is it Enough?

Proponents of the CMPTI are likely to emphasise the CMPTI’s role in developing the Australian critical minerals sector by unlocking additional investment in the industry. The Association of Mining and Exploration Companies has, for example, stated that the CMPTI will generate new projects, drive economic growth and deliver more jobs.⁶ By reducing production costs and accelerating project development, the CMPTI may helpfully bridge the commercialisation gap for project proponents where existing capital expenditure requirements are prohibitive.

However, we have noted in a previous article that the critical minerals industry is likely to be challenged by increasing pressure to make new mines and processing facilities sustainable, and to enhance the interests of affected parties such as local communities and Indigenous groups. In light of this, it is important that project proponents seeking the CMPTI are prepared to address the community benefit eligibility criteria discussed above. We see this as an opportunity for the industry to support the engagement and empowerment of communities by tailoring proposed benefits to the locality, interests and ambitions of affected groups.

Additionally, the CMPTI is likely to be most effective where it complements other policy instruments such as the Guarantee of Origin Scheme (GO Scheme) to enhance domestic and international market confidence in the critical minerals industry. The GO Scheme aims to certify emissions associated with green metals in Australia, support renewable energy claims and enable exports.⁷ The GO Scheme and CMPTI present opportunities for domestic producers to capitalise on government policy initiatives that will facilitate critical minerals processing, and enhance the ‘greenness’ of critical minerals products such that those products are more attractive to consumers. Demand for products which meet rigorous certification standards is growing, particularly in developed markets such as the European Union. Processing projects that can capitalise on this demand by utilising the CMPTI and GO Scheme are likely to reap significant benefits.

However, critical mineral processing facilities are large infrastructure projects that can take many years to operationalise, and the 10 year eligibility window of the CMPTI may not be sufficient. The CMPTI eligibility criteria are therefore likely to favour established market operators that understand how to navigate the complex approval regime and secure financing, as opposed to new entrants. This has important implications for the security of critical minerals supply chains, as restrained competition risks concentrating supply chain operations in the hands of a few dominant organisations.

We look forward to following the responses from the industry and developments of the CMPTI as it emerges from the consultation process. Watch this space for further updates on the CMPTI, and the HPTI, from the Hamilton Locke New Energy and Tax teams.

For more information, please contact Matt Baumgurtel; Seema Sandhu; David O’Carroll; Megan Chau.

¹The Hon Anthony Albanese MP and The Hon Dr Jim Chalmers MP, ‘A Future Made in Australia Bill will build a stronger, cleaner economy,’ Prime Minister of Australia (Media Release, 3 July 2024) <https://www.pm.gov.au/media/future-made-australia-bill-will-build-stronger-cleaner-economy>.

²Australian Government, ‘Investing in a Future Made in Australia’ (Web Page) <https://budget.gov.au/content/03-future-made.htm#m2>.

³Australian Government, The Treasury, Critical Minerals Production Tax Incentive (Consultation Paper, June 2024) 2.

⁴Ibid 3-4.

⁵Ibid.

⁶Warren Pearce, ‘Green Light for Critical Minerals Production Tax Incentive’ (Media Release, Association of Mining and Exploration Companies, 14 May 2024) 1.

⁷Australian Government, Department of Climate Change, Energy, the Environment and Water, ‘Guarantee of Origin scheme’ (Web Page) <https://www.dcceew.gov.au/energy/renewable/guarantee-of-origin-scheme>.