The Future Made in Australia (Production Tax Credits and Other Measures) Act 2025 (Act), which received Royal Assent shortly before this year's Federal election was announced, established the critical minerals production tax incentive (CMPTI). The CMPTI provides a 10% tax offset on eligible Australian processing expenditure for critical minerals processed and refined from 1 July 2027 to 30 June 2040.
At the time of its passage through Parliament, concerns were raised about various aspects of the CMPTI (and the hydrogen production tax incentive that was also established by the Act). While many of those concerns remain to be addressed, Treasury has issued an exposure draft of the Income Tax Assessment (1997 Act) Amendment (Critical Minerals) Regulations 2025 (Regulations). The Regulations prescribe certain critical minerals processing activities that are intended to be eligible for the CMPTI but would not otherwise meet the general test set out in the Act.
In this insight we delve into the draft Regulations and provide an update on other aspects of the CMPTI which we have previously discussed.
Background to the Act and the CMPTI
The CMPTI became law shortly before the May 2025 Federal election was announced. Not surprisingly, given the Government's desire to establish the CMPTI before the election, the Senate Economics Legislation Committee (Committee) recommended that the Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 (Bill) be passed without amendment as a priority.
Nonetheless, as we set out here, submissions received and comments made at the January 2025 public hearing for the inquiry in relation to the Bill indicate that concerns remain over a number of key aspects of the CMPTI. Amongst other things, they relate to the community benefit principles (CBPs). We have also set out here some of our broader concerns with the CMPTI.
CMPTI eligible processing activities
The CMPTI will apply to a processing activity that gives rise to a 'substantial transformation' of a feedstock containing a critical mineral into a purer or more refined form that is chemically distinct from the feedstock. Outputs are defined through a test that is principally based on the processing activities undertaken, such as extractive metallurgical processing techniques, as opposed to eligibility based on the purity of the output. Therefore, a broad array of activities may qualify for the CMPTI.
As an alternative to the substantial transformation requirement, the Act leaves open the possibility for regulations to extend the coverage of the CMPTI to:
- additional 'things' prescribed under regulation as 'critical minerals'; and
- other processing activities that 'relate to' one or more critical minerals and that are of 'a kind', and 'produce an outcome', prescribed by the regulations.
The Regulations have been proposed in this context. They prescribe processing activities and outcomes to allow the processing activities for identified critical minerals (considered an important part of the Critical Minerals Strategy 2023-2030) to be deemed eligible CMPTI processing activities. Absent the Regulations, expenditure incurred in the production process for certain critical minerals would not meet the general eligibility test for the CMPTI.
The Regulations propose to allow the following processing activities for identified critical minerals to be deemed eligible CMPTI processing activities:
- High Purity Alumina (HPA) - HPA processing activities using feedstock containing aluminium (rather than critical minerals) to qualify, provided the HPA produced has a minimum purity of 99.99 per cent;
- Graphite - the processing of graphite, without the requirement for there to be a chemical transformation of feedstock, to be a CMPTI processing activity, subject to meeting the prescribed requirements (which depend on the type of processing activity); and
- Critical mineral-containing precursor cathode active material (pCAM) - the processing of pCAM, which is not identified as a critical mineral (although multiple constituents of both feedstock and output of pCAM are critical minerals), to be prescribed as a CMPTI processing activity, subject to meeting other activity and outcome requirements. pCAM production can be considered the last step of critical mineral processing for critical minerals such as nickel, cobalt and manganese for the manufacture of lithium-ion batteries, a key component of the Future Made in Australia
Concerns with the Regulations – and the CMPTI generally
Processing activities and the Regulations
The Regulations seek to expand coverage of the CMPTI to three specific use cases. The design of the CMPTI eligibility requirements unfortunately means that, as new critical mineral-adjacent projects and innovative processing activities are developed, these may fall outside these prescribed use cases and require further regulation. For example, we note that mining, beneficiation and manufacturing cannot be prescribed as processing activities and that uranium cannot be prescribed as a 'critical mineral' by regulation.
Consistent with the primary test for assessing whether a processing activity is a 'CMPTI processing activity' (and, ultimately, whether a company is entitled to the CMPTI for expenditure in respect of such activities), the relevant processing activities to be prescribed by the Regulations must be of a kind that 'substantially' transforms a feedstock. The potential vagueness of the term 'substantial' in this context should not be problematic given the specification of the outcome required by the prescribed processing activities.
However, in respect of the regulations for graphite, the word 'substantially' is used again in respect of the outcomes for two of the three prescribed processing activities – the particles of graphite in a feedstock must, for micronisation and spheronisation processing activities that reduce the size of, or shape, the particles, have a substantially more uniform size or spherical shape (as applicable).
Further, it must be the case that a substantial purpose for carrying on the relevant processing activity is to achieve the transformation or prescribed outcome. Notes to the specific regulations for each of the critical minerals addressed by the Regulations make clear that this requirement continues to apply. As we set out here, the Explanatory Memorandum to the Bill provides that this does not have to be the sole or dominant purpose for carrying out the processing activity. Instead, the term 'substantial' is used in its relative sense and is intended to signify something that is real or of substance. That is, the actual outcomes of the processing activity and their significance for the company must be examined to determine if achieving the transformation or outcome is a substantial purpose.
Consequently, the layering of requirements to be satisfied that use the word 'substantial' has the potential to increase uncertainty in the application of the CMPTI to processing of the critical minerals covered by the Regulations (and more generally).
Other aspects of the CMPTI
The major area of uncertainty regarding the CMPTI – and whether it will be available to critical minerals processing activities - continues to be the application of the CBPs to this support. We have set out these concerns here and here.
The Committee noted the requirement for further consultation on the CBPs rules in respect of the CMPTI (Rules). We are not aware of such consultation having been undertaken, and so it is not expected that the Rules will be released for some time. Therefore, the availability of the CMPTI more generally continues to be uncertain for all critical mineral processors.
We'll keep you updated on further developments regarding the CMPTI, including further regulations covering other critical minerals, and the CBPs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
