Treasurer unveils initial plans for production tax incentives
Proposed details for the government’s production tax incentives for critical minerals and renewable hydrogen have now been released.
Treasury has released consultation papers outlining the details of two tax incentives designed to incentivise investment in renewable hydrogen and boost the production of critical minerals.
The hydrogen production tax incentive and critical minerals production tax incentive were first announced as part of the Future Made in Australia package in the budget.
The Critical Minerals Production Tax Incentive (CMPTI) will allow eligible entities to claim 10 per cent of eligible expenditure for processing and refining any of the 31 minerals currently published on the government’s critical minerals list through each eligible facility.
Eligible expenditure will exclude the costs of the raw materials, as well as the capital costs of depreciation and financing.
The CMPTI will be delivered through Australia’s tax system as a refundable offset to eligible producers of processed and refined critical minerals between 2027–28 and 2039–40.
The consultation paper explained that depending on the circumstances of the claiming company, the offset may result in a cash refund or a reduced income tax liability.
"Entities may be able to adjust their Pay As You Go (PAYG) instalment rate based on the expected credit under the existing framework where they are in a tax payable position," the paper said.
The consultation paper also outlined that the CMPTI will be uncapped and demand-driven.
"The total value of support will depend on the industry’s success in responding to this initiative and broader economic factors that help bring projects online," it said.
The CMPTI will be available in respect of each facility for up to 10 years for eligible expenditure incurred from first production between the period starting 1 July 2027 and ending 30 June 2040.
"Eligible taxpayers will need to have taken a final investment decision – or have already started production – by 1 July 2030 in respect of each eligible facility. The CMPTI will only be payable where minerals are processed to specified purity levels, or outputs," the paper said.
The Hydrogen Production Tax Incentive (HPTI) is a time-limited measure designed to accelerate the growth of Australia's hydrogen industry.
The HPTI will be delivered through Australia’s tax system as a refundable tax offset to eligible producers of renewable hydrogen for a maximum of 10 years between 2027–28 and 2039–40.
The HPTI operates in a similar way to the CMPTI with the offset either resulting in either a cash refund or a reduced income tax liability, depending on the circumstances of the claiming company. The HPTI will also be uncapped and demand-driven.
"The HPTI will only be available to producers who meet eligibility criteria," the consultation paper stated.
"This will include verification of hydrogen production volumes and the emissions intensity of the hydrogen produced through the Guarantee of Origin Scheme, administered by the Clean Energy Regulator.
"Broader eligibility requirements which align with the Future Made in Australia Community Benefit Principles will also be established as part of accessing the taxpayer support through the HPTI."
Under the proposed details in the paper, a $2 refundable tax offset would be provided for each kilogram of eligible hydrogen produced. The offset amount will not be adjusted for inflation.
To be eligible, facilities must be located in Australia and meet the minimum capacity and emissions intensity thresholds.
"Each kilogram of renewable hydrogen must be produced with an emissions intensity less than or equal to 0.6 kg of carbon dioxide equivalent from well to the production gate," the paper said.
"Verification of production volumes and emissions intensity will occur through the Guarantee of Origin Scheme."
The consultation paper said it is proposed that the verification of hydrogen production volumes, associated emissions intensity, production pathway and energy source will occur through the proposed Guarantee of Origin (GO) scheme.
"Producers will be required to register their facility with the Clean Energy Regulator using a production profile. This profile will capture information relating to the facility including general information (including the site capacity) and information to calculate the emissions intensity of hydrogen from the facility," it said.
"Once a facility is registered under the GO scheme, producers will need to create GO Certificates for each kilogram of hydrogen produced in order to receive the credit. Producers will be able to claim credits based on the information in the certificate and the ATO will be able to validate claims against the registry of certificates."
To claim the incentive, producers will need to retain records under the existing taxation record-keeping requirements.
"The GO scheme will also include a public registry that stores information about registered facilities and every GO certificate," the paper said.
"Appropriate assurance arrangements will also be established to support adherence with broader eligibility requirements, including those that support the delivery of the Future Made in Australia Community Benefit Principles."
Treasurer Jim Chalmers said the two measures will incentivise investment in renewable hydrogen, boost production of critical minerals and create jobs and opportunities for Australians.
"The global energy transformation represents a golden opportunity for Australia and our production tax incentives will help us make the most of that opportunity," said Dr Chalmers.
"Our production tax incentives will unlock new investment and new jobs in renewable hydrogen and critical minerals processing."
Consultation on the proposed details for the two incentives will end 12 July 2024.
