House of Representative

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)

Chapter 2: Critical Minerals Production Tax Incentive

Outline of chapter

2.1 Schedule 2 to the Bill establishes the CMTPI, in the form of a new refundable tax offset, the CMPTI tax offset, to support the processing of critical minerals in Australia.

2.2 Legislative references in this chapter are to the ITAA 1997 unless otherwise specified.

Context of amendments

Critical minerals and their significance for Australia

2.3 Critical minerals refer to metallic or non-metallic materials that are essential to modern technologies, economies and national security, and whose supply chains are vulnerable to disruption. Currently, the Australian Government has listed 31 'critical minerals'. ^[2]

2.4 The global economy is making a long-term shift towards renewables and low carbon technologies. The supply of critical minerals will be crucial for facilitating this shift, as many critical minerals are essential components of technologies that will form part of the transition to net zero emissions. As a result, the world's demand for these minerals is expected to substantially increase in the coming decades.

2.5 Australia has a significant natural endowment of critical minerals and a highly developed mining sector with expertise in extraction and beneficiation (the basic cleaning and mechanical separation of ore before further substantive processing is performed). However, only a small amount of critical minerals mined in Australia are processed from ore to refined end-product entirely onshore.

2.6 Instead, after the initial 'upstream' phases are complete, the minerals are generally exported overseas to undergo further processing and refinement for ultimate use. For example, though Australia is the world's largest producer of lithium, there are currently only two operating downstream lithium processing plants onshore in Australia, with both only achieving first production in mid-2022.

2.7 In this context, many industry players in Australia are currently considering either investing in minerals processing, adding this activity to existing extraction projects, or onshoring existing processing activity that is currently performed offshore.

Existing support for critical minerals in Australia

2.8 Critical minerals are important to Australia's economy and security. In 2023, the Government published the Critical Minerals Strategy 2023-2030, a national framework intended to grow Australia's critical minerals sector. ^[3] This Strategy outlined that the Government will take a 'concerted, targeted and proportionate approach to developing our critical minerals sector'. ^[4]

2.9 To this end, the Government is providing significant support to critical minerals projects. The CMPTI tax offset will be in addition to:

•

The $4 billion Critical Minerals Facility administered by Export Finance Australia, which provides financing to critical minerals projects aligned with the Critical Minerals Strategy;

•

The Northern Australia Infrastructure Facility, with $500 million earmarked for investment in critical minerals projects;

•

The Resourcing Australia's Prosperity program, which invests $566.1 million over ten years from 2024-25 for Geoscience Australia to deliver new precompetitive geoscience data, information, and decision support tools. The program will focus on mapping the critical minerals, strategic materials, and groundwater, naturally occurring hydrogen or potential sites for geological storage of hydrogen and carbon dioxide and suitable sites for renewable energy infrastructure;

•

Grants programs to support early- to mid-stage critical minerals projects; and

•

The establishment of the Australian Critical Minerals Research and Development Hub.

Future Made in Australia agenda and the CMPTI

2.10 In the 2024-25 Budget, the Government announced its $22.7 billion Future Made in Australia package. The initiatives that form part of this package are intended to create new jobs and opportunities for every part of our country by maximising the economic and industrial benefits of the move to net zero and securing Australia's place in a changing global economic and strategic landscape.

2.11 Part of this package included a National Interest Framework to guide targeted public investment into priority industries and sectors. The processing of critical minerals was identified as a priority sector under the Economic Resilience and Security stream of the National Interest Framework.

2.12 Following from this and the Critical Minerals Strategy 2023-2030, the Government announced that it would introduce a CMPTI.

2.13 The CMPTI is intended to encourage and facilitate initial investment in downstream critical minerals processing, in order to move Australia "along the value chain" from these initial stages of mining and beneficiation to further processing and refinement.

Summary of new law

2.14 Schedule 2 to the Bill establishes the CMPTI, in the form of a new refundable tax offset, the CMPTI tax offset. The amount of the offset for an eligible company is equal to 10 per cent of the eligible expenditure of the company.

2.15 The CMPTI tax offset is only available for income years that start on or after 1 July 2027, and end on or before 30 June 2040.

2.16 Broadly, a company is eligible for the CMPTI tax offset in an income year if, at all times in the income year in which it is carrying on a registered CMPTI processing activity, it is a constitutional corporation that is either a tax resident of Australia that has an ABN or is a foreign resident with an Australian permanent establishment through which the relevant production activities will be carried on and has an ABN. The company will also have to comply with any rules implementing the community benefit principles for the CMPTI made by the Treasurer.

2.17 A company may register an activity for the CMPTI tax offset by applying to the Industry Secretary. This application must be in form approved by the Industry Secretary and identify the critical mineral processing activities, the facilities at which the activity will occur, and the basis on which the company considers it will satisfy the requirements to be eligible for the CMPTI tax offset. The Industry Secretary is required to register the activity for the company where the Industry Secretary is satisfied that the proposed activities will be CMPTI processing activities, and the Industry Secretary has no reason to believe the information provided is not true, correct and complete or that the company would not satisfy the eligibility requirements.

2.18 CMPTI processing activities are 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;

provided that a substantial purpose in carrying on the activity is to produce the transformed critical mineral or achieve the specified outcome.

2.19 Certain activities, including mining activities and, beneficiation are excluded from being CMPTI processing activities. The regulations may prescribe further exclusions.

2.20 The amount of the CMPTI tax offset for an income year is 10 per cent of the CMPTI expenditure of the company. CMPTI expenditure for a company for an income year is expenditure incurred by the company during the income year in carrying on one or more of its registered CMPTI processing activities that is not excluded expenditure.

2.21 The Industry Secretary has responsibility for the registration of CMPTI processing activities, and the ATO has primary responsibility for administering the CMPTI tax offset. The CMPTI tax offset is self-assessed by the eligible company and an amount is included in its income tax return in relation to an income year. This means that the ATO's general administration, dispute and compliance powers and functions apply in relation to the CMPTI tax offset. Several amendments are made to ensure these powers are fit for purpose for the administration of the CMPTI.

Detailed explanation of new law

Part 1 - Main amendments

2.22 The CMPTI tax offset is a refundable tax offset for expenditure incurred in carrying out registered CMPTI processing activities.

2.23 The amount of the CMPTI tax offset for an income year is equal to 10 percent of CMPTI expenditure incurred by an eligible company in that income year, subject to any reduction that may occur if an entity does not comply with the implementing the community benefit principles for the CMPTI.

2.24 However, the CMPTI tax offset is only available in relation to a particular processing activity for a period of up to 10 income years during the period starting on 1 July 2027 and ending on 30 June 2040.

[Schedule 2, item 1, section 419-1, paragraph 419-5(1)(b) and section 419-10 of the ITAA 1997]

Eligibility requirements

2.25 A company is entitled to the CMPTI for an income year if it meets the following requirements:

•

it is a constitutional corporation;

•

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.

[Schedule 2, item 1, subsection 419-5(1) of the ITAA 1997]

2.26 These eligibility requirements are discussed further in turn. For the purpose of this discussion, we have separated the requirements relating to the company, the requirements relating to the activity and the requirements relating to the period.

2.27 Many core eligibility concepts for the CMPTI tax offset are identified using the acronym "CMPTI". These include:

•

CMPTI tax offset

•

CMPTI processing activity

•

Registered CMPTI processing activity

•

CMPTI expenditure

Constitutional corporation

2.28 The first requirement for the company is that it must be a constitutional corporation. A constitutional corporation is defined in subsection 995-1(1) as a corporation to which paragraph 51(xx) of the Constitution applies, or a body corporate that is incorporated in a Territory.

[Schedule 2, item 1, paragraph 419-5(1)(a) of the ITAA 1997]

2.29 Entities that are not corporations cannot be constitutional corporations and will never be entitled to the CMPTI tax offset. A constitutional corporation may be eligible for the CMPTI tax offset for an activity it is carrying on through an unincorporated joint venture. However, the corporation would only be eligible for the CMPTI tax offset for expenditure it incurred. It cannot claim the tax offset for expenditure incurred by other participants in the unincorporated joint venture.

2.30 In some cases, a company may be a member of a consolidated group for tax purposes. If a member company is a constitutional corporation and satisfies all of the other requirements to be eligible for the CMPTI tax offset, the head entity for the group will be able to claim the tax offset in respect of the member's entitlement.

Community benefit principles

2.31 The second requirement for the company is that it must have complied with the rules implementing the community benefit principles for the CMPTI made by the Treasurer (referred to as the CMPTI community benefit rules) that apply to the company during the income year.

[Schedule 2, item 1, paragraph 419-5(1)(f) of the ITAA 1997]

2.32 The community benefit principles are the principles set out in the Future Made in Australia Bill 2024. For grants programs and other spending initiatives that are designated Future Made in Australia supports, the Future Made in Australia Bill requires decision makers to have regard to these principles in deciding whether to provide these supports, allowing appropriate enforcement of community benefits.

2.33 While the CMPTI tax offset is provided through the tax system rather than being a spending initiative, it has been designed with regard to the community benefit principles. This includes providing for the making of rules implementing the community benefit principles in the context of the CMPTI tax offset.

2.34 The rules implementing the community benefit principles for the CMPTI are made by the Treasurer (or another Treasury Minister) by legislative instrument and specify conditions that must be met for a company to be eligible for the CMPTI tax offset for an income year.

[Schedule 2, item 1, paragraph 419-145(1)(a) of the ITAA 1997]

2.35 The rules may also specify that the amount of the critical minerals production tax offset that a company is entitled to for an income year is reduced by a specified amount or proportion if the company does not comply with specified requirements in the rules.

[Schedule 2, item 1, subsection 419-10(2) and paragraph 419-145(1)(b) of the ITAA 1997]

2.36 As the rules will need to be strict requirements, they may require regular updating to address current and emerging circumstances. Given this, it is not considered feasible to include the requirements in primary law. However, the rules will be subject to disallowance and sunsetting after 10 years and will therefore be subject to appropriate parliamentary scrutiny.

2.37 It is anticipated the rules implementing the community benefit principles for the CMPTI may involve requiring that entities arrange for the certification of their activities by expert bodies that their activities meet certain requirements, with the ATO needing to confirm the fact of that certification.

2.38 In making the rules, the Treasurer must have regard to the community benefit principles set out in the Future Made in Australia Act 2024. Further, when having regard to those principles, the Treasurer is required to treat the critical minerals production tax offset as if it were Future Made in Australia support within the meaning of the Future Made in Australia Act 2024. Given this, the Treasurer may only make rules implementing the community benefit principles for the CMPTI after the Future Made in Australia Bill 2024 has received royal assent and commenced.

[Schedule 2, item 1, paragraph 419-145(1)(a) and subsections 419-145(2), (3) and (4) of the ITAA 1997]

2.39 This ensures that the requirements under these rules are aligned with the requirement relating to community benefits for other support under the Future Made in Australia agenda despite the differing legislative context.

2.40 For further details on the community benefit principles, please see the Explanatory Memorandum to the Future Made in Australia Bill 2024.

Residency and income requirements

2.41 The third and fourth requirements for a company to be eligible for the CMPTI tax offset relate to the residency of the company and its income tax treatment.

2.42 A company will satisfy the residency requirements to be eligible for the CMPTI tax offset if at all times during the income year during which its registered CMPTI processing activities are carried on, either:

•

it is an Australian tax resident, has an ABN and is carrying on the activity; or

•

it is a foreign resident with a permanent establishment in Australia through which the registered CMPTI processing activities are carried on, and has an ABN.

[Schedule 2, item 1, subsection 419-5(2) of the ITAA 1997]

2.43 A permanent establishment is defined in subsection 6(1) of the ITAA 1936 as a place at or through which the person (including a company) carries on any business (excluding some arrangements where the person carries out the business through a broker or agent, or where the place of business is maintained solely for the purpose of purchasing goods or merchandise).

2.44 A company will satisfy the requirement relating to its income tax treatment for an income year provided that it is not an exempt entity. An exempt entity is defined in subsection 995-1(1) of the ITAA 1997 as, broadly, an entity all of the income of which is exempt from income tax. An indicative list of exempt entities is set out in section 11-5 of the ITAA 1997. This requirement ensures that companies whose income is not subject to income tax cannot access the CMPTI tax offset.

[Schedule 2, item 1, paragraph 419-5(1)(e) of the ITAA 1997]

2.45 The combined effect of these requirements is that any income from the processing activities for which the company is eligible for the CMPTI tax offset must be subject to Australian tax, either as the activities of an Australian resident or as activities carried on through a permanent establishment in Australia.

Registered CMPTI processing activities

2.46 For a company to be eligible for the CMPTI tax offset for an income year there must be one or more CMPTI processing activities registered for the company for the income year.

[Schedule 2, item 1, paragraph 419-5(1)(c) of the ITAA 1997]

2.47 An activity is a registered CMPTI processing activity for a company if either:

•

the activity is registered for the company and the registration is in force for the company and the income year, or

•

the registration of the activity is transferred to the company, and the registration is in force for the company and the income year.

[Schedule 2, item 1, subsection 419-35(1) of the ITAA 1997]

2.48 For an activity to become a registered CMPTI processing activity for a company, the company (the applicant) will need to apply to the Industry Secretary, in the approved form, to register the relevant activities. The application must include:

•

details of the activity and each facility where the activity is to be carried on;

•

confirmation that the applicant is the legal entity that is, or will be, carrying on the activity to which the application relates; and

•

the basis on which the applicant considers that they satisfy the eligibility requirements to claim the CMPTI tax offset in relation to the activity.

[Schedule 2, item 1, paragraphs 419-35(2)(a), (b), (c) and (d) of the ITAA 1997]

2.49 The application must additionally be accompanied by any other information, documents or materials (if any) as required by the approved form. The applicant must also pay any application fee prescribed by the regulations.

[Schedule 2, item 1, subsection 419-150(2) and paragraph 419-35(2)(g) of the ITAA 1997]

2.50 The Industry Secretary may request additional information from the applicant about their application. To ensure that an appropriate decision is based on complete information, the Industry Secretary does not need to consider the application while waiting for the applicant to provide this information.

[Schedule 2, item 1, paragraph 419-80(1)(a) and subsection 419-80(3) of the ITAA 1997]

2.51 The Industry Secretary must register an activity for a company if:

•

they are satisfied that the activities are CMPTI processing activities (the requirements for an activity to be a CMPTI processing activity are discussed at paragraphs 2.106 to 2.146; and

•

they have no reason to believe that:

-

the information in the application is not true, correct and complete; or

-

the applicant will not satisfy the eligibility requirements to claim the CMPTI tax offset for the income year.

[Schedule 2, item 1, paragraphs 419-35(2)(e) and (f) of the ITAA 1997]

2.52 Effectively, the Industry Secretary will register activities that are CMPTI processing activities unless there are reasons to doubt the correctness of the information provided or the Industry Secretary is not satisfied the company would be eligible for the CMPTI tax offset for the registered activity. The Industry Secretary does not have the power to register an activity for a company unless the requirements set out in paragraph 2.51 are met.

2.53 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.

2.54 Departures from what is described will mean that the activity being carried out is not the registered CMPTI processing activity (unless the registration is appropriately varied).

2.55 The Industry Secretary must provide written notice to the applicant and the Commissioner of their decision about whether to register the activities. If the Industry Secretary does register the activities identified in the application, the notice must include a certificate of registration, which includes:

•

the registered company's name and ABN;

•

the day the certificate is issued;

•

a description of the registered activity and of each facility where the activity is to be carried on; and

•

any other matters (if any) required by the regulations.

[Schedule 2, item 1, section 419-40 of the ITAA 1997]

2.56 After the Industry Secretary has registered the activities for the company, registration is ongoing. Unless registration of an activity is suspended or revoked, the registration will only cease at the end of the 10-year period for which the CMPTI tax offset is available for the activity. This eligibility period is discussed in paragraphs 2.195 to 2.214.

Requests for information about transfers, variations or the exercise of discretions

2.57 Similar to their power to request for information in relation to an application for registration of an activity, the Industry Secretary can request a company, applying for the variation or transfer of the registration of an activity or the exercise of the discretion to accept late material, to provide further information about the relevant activity. The request may require the information to be given in a form approved by the Industry Secretary at any time.

[Schedule 2, item 1, paragraphs 419-80(1)(b) to (d) and (4) of the ITAA 1997]

2.58 Consistent with application for registration, there is no time limit within which a company must respond to such a request. However, the Industry Secretary does not need to consider the relevant application while waiting for the information requested.

[Schedule 2, item 1, subsection 419-80(3) of the ITAA 1997]

Requests for further information after registration

2.59 The Industry Secretary may also request a company that has a registered CMPTI processing activity to give specified information, or specified kinds of information, about the registration in a form approved by the Industry Secretary.

[Schedule 2, item 1, subsection 419-80(2) of the ITAA 1997]

2.60 Upon receiving a request, the registered company must then provide this information within 30 days from the day of the request, or within a longer period as the Industry Secretary may allow.

[Schedule 2, item 1, paragraphs 419-80(2)(a) and (b) of the ITAA 1997]

2.61 A failure to comply with a request for information within the required period will result in the automatic suspension of registration of the related activity.

[Schedule 2, item 1, paragraph 419-65(1)(b) of the ITAA 1997]

2.62 If this failure continues until the end of the first income year to conclude more than 60 days after this suspension has effect, then the registration of the activity will be revoked for the income year in which the request was received and all subsequent income years.

[Schedule 2, item 1, subsection 419-70(2) of the ITAA 1997]

2.63 However, the company can apply to the Industry Secretary, in the form approved by the Industry Secretary, to accept the late material. Upon receiving this application in the approved form, accompanied by the prescribed fee, the Industry Secretary has the discretion to accept the late material if they are satisfied that this delay is the result of exceptional circumstances that were beyond the registered company's control. The result of the Industry Secretary accepting that late material is that the registration of the company will be treated as never having been revoked.

[Schedule 2, item 1, subparagraph 419-70(3)(a)(ii) and paragraphs 419-70(3)(b) to (e) of the ITAA 1997]

2.64 A request for further information must state that registration may be suspended or revoked if the request is not complied with.

[Schedule 2, item 1, subsection 419-80(2) of the ITAA 1997]

2.65 This power intends to maintain the integrity of the registration process by ensuring that registrations remain current. If the Industry Secretary becomes aware of any developments relevant to a company's registration (for example if the registered activity will be carried on at a different facility from the one identified in the registration), this power will assist the Industry Secretary to make an appropriate decision in relation to the registration (for example, to vary or revoke the registration as described at paragraphs 2.88 to 2.92 and 2.80 to 2.87).

Annual reporting requirements

2.66 A company for which an activity is a registered CMPTI processing activity for an income year must provide the Industry Secretary with an annual report. The report mut be provided within the period determined by Industry Secretary by legislative instrument. The reporting period for an income year must start at the end of the income year and cannot end for at least 30 days.

[Schedule 2, item 1, subsections 419-45(1), (4) and (5) of the ITAA 1997]

2.67 The report must be prepared in the form approved by the Industry Secretary which may require the report to include:

•

any specified information relating to the outputs of activity for the income year;

•

any specified information relating to the expected outputs of the activity for the next income year; and

•

any significant events that could affect the company's entitlement to the CMPTI tax offset or the registration of the activity and either occurred during the income year or are expected in the next income year.

2.68 The report must also contain any other information (if any) prescribed by the regulations. Due to the complexity and range of minerals processing projects, this flexibility will assist maintaining the integrity of the CMPTI tax offset by ensuring that the full breadth of considerations that may affect a company's eligibility is reported through this mechanism for DISR's consideration.

[Schedule 2, item 1, subsections 419-45 (2) and (3) and section 419-150 of the ITAA 1997]

2.69 The report should also contain any other information, documents or other materials as required by the Industry Secretary.

[Schedule 2, item 1, subsection 419-150(2) of the ITAA 1997]

2.70 Broadly, the information in the report on outputs and expected outputs will allow DISR (and the ATO when considering whether expenditure is CMPTI expenditure) to understand the nature and scale of the processing activities. The specified matters may include technical matters such as the average chemical composition of outputs, practical matters such as the volume of outputs and commercial matters such as the details of offtake arrangements.

2.71 The information in the report on significant events will inform DISR and the ATO about developments that may materially affect the processing activities and resulting tax offset claims. In this context, 'significant' is to be understood in light of the materiality of the event to the registration of the activity or entitlements to the CMPTI tax offset. The sorts of events that the Industry Secretary may determine to be significant include substantial changes in processing activities or outputs, changes in ownership arrangements, events that would substantially affect production levels, or events that would require the facility to be placed into care and maintenance.

2.72 If a registered company fails to provide the annual report to the Industry Secretary within the period determined by the Industry Secretary, its registration is automatically suspended. Suspension is effective until the annual report is provided, containing the information documents and materials outlined in paragraphs 2.67 to 2.69. Until this suspension is lifted, the company is not eligible to claim the CMPTI tax offset for the current income year and future income years.

[Schedule 2, item 1, paragraph 419-65(1)(a) of the ITAA 1997]

2.73 If the registered company has failed to provide the report for an activity by the end of the income year during which the report is due, its registration for that activity will be automatically revoked with effect for that income year and subsequent income years.

[Schedule 2, item 1, subsections 419-70(1) and 419-75(2) of the ITAA 1997]

2.74 The company will be ineligible to claim the CMPTI tax offset for an activity after its registration for that activity has been revoked. Nevertheless, the company can still apply for re-registration of that activity for future income years. It will need to follow the same application process for first-time registrations.

2.75 However, the Industry Secretary may treat a late annual report as being received within time in the same circumstances as is possible for a late response to a request for information - see paragraph 2.63. If the Industry Secretary exercises this discretion, the registration of the activity is treated as if it was never revoked.

[Schedule 2, item 1, subparagraph 419-70(3)(a)(i) and paragraphs 419-70(3)(b) to (e) of the ITAA 1997]

2.76 Once received, the Industry Secretary must provide the Commissioner with a copy of each annual report.

[Schedule 2, item 1, subsection 419-45(6) of the ITAA 1997]

Industry Secretary must annually advise the Commissioner about registered CMPTI processing activities

2.77 Based on all the information that the Industry Secretary has about a company's registration of a registered CMPTI processing activity for an income year, including the annual report, the Industry Secretary must for each income year, advise the Commissioner in relation to each registered CMPTI processing activity whether, in relation to the income year:

•

the activity is being carried on in accordance with the registration;

•

the company for which the activity is registered is carrying on any CMPTI processing activities during the income year that are not registered CMPTI processing activities; and

•

the company for which the activity is registered is carrying on any other activities that the Industry Secretary considers may be relevant to the Commissioner's administration of the CMPTI tax offset.

[Schedule 2, item 1, section 419-85 of the ITAA 1997]

2.78 This advice could be based on information from sources including the annual report by the company for which the activity is registered, any applications for registration, the transfer of a registration or the variation of a registration from the company, and any materials received from the company following a request for further information.

2.79 This advice will inform the Commissioner about whether the company is carrying on activities for which it may claim the CMPTI tax offset in an income year. It will also alert the Commissioner to processing activities that the company may be carrying on that are not registered to assist in ensuring that expenditure relating to such ineligible activities is not included when working out the CMPTI tax offset. However, advice provided is not conclusive proof that the activity is an eligible CMPTI processing activity.

Revoking a registration

2.80 In addition to the automatic suspension and revocation due to a failure to provide an annual report or a failure to provide requested information, the Industry Secretary has a discretion to revoke the registration of an activity.

2.81 The Industry Secretary may revoke all registration of an activity for a company or companies from the date the activity was originally registered if the Industry Secretary satisfied that:

•

the registration was based on untrue, inaccurate or incomplete information;

•

the registration was obtained by fraud or serious misrepresentation; or

•

no company was ever entitled to be registered for the activity.

[Schedule 2, item 1, subsections 419-70(4) and 419-75(1) of the ITAA 1997]

2.82 These are all cases where the initial registration should never have been granted. In such a case the company for which the activity is currently registered, and all other previous companies for which the activity was registered are treated as if the activity was never registered. If any company (including companies for which the activity was previously registered) has previously claimed the offset, the Commissioner will vary that company's past income tax assessments and recover any payments made or additional tax owning.

2.83 The Industry Secretary may also revoke the registration of a company with effect from the income year if the Industry Secretary either:

•

is satisfied that the company provided information relating to its registration that was fraudulent or involved a serious misrepresentation; or

•

reasonably believes that the registration for the income year is not based on accurate and complete information or that the company does not satisfy the requirements to be entitled to a CMPTI tax offset in relation to the activity and the income year.

[Schedule 2, item 1, subsections 419-70(5) and subsection 419-75(2) of the ITAA 1997]

2.84 In these cases, the revocation decision has effect for the income year during which the information was provided or to which the belief relates and subsequent income years.

2.85 However, the past registration of the activity continues to be recognised for the purposes of administrative and judicial review processes, as well as the rules relating to revocation, including the notice requirements. This ensures that companies are entitled to notice and effective review of any decision to revoke the registration of an activity for that company.

[Schedule 2, item 1, subsections 419-75(3) of the ITAA 1997]

2.86 After deciding whether to revoke a registration, the Industry Secretary must then provide written notice of their decision to any company that holds or held a registration affected by the decision and the Commissioner within 30 days of the day the decision was made.

[Schedule 2, item 1, subsection 419-70(6) of the ITAA 1997]

2.87 If registration of an activity is revoked, the company may still apply to re-register the activity through the same application process for first-time registrations. However, the registration of the activity will still end at the end of original 10-year period that applied, or would have applied, when the activity was first registered for any company.

[Schedule 2, item 1, paragraph 419-50(4)(b) and subsection 419-50(5) of the ITAA 1997]

Varying the registration of an activity

2.88 The Industry Secretary may vary the registration of an activity for a company.

2.89 The Industry Secretary may do so either at their own initiative, or if the company applies in the form approved by the Industry Secretary, accompanied any information, documents or materials the Industry Secretary may require and any required fee.

[Schedule 2, item 1, subsections 419-60(1) and (2) of the ITAA 1997]

2.90 When deciding whether to vary a registration, the Industry Secretary must have regard to any proposed changes, any matters prescribed by regulations and any other matters that the Industry Secretary considers relevant. For a decision made in response to a request for an amendment, the Industry Secretary must also consider if the information provided together with the application is true, correct and complete. Registrations may need to be varied for a wide array of reasons. Due to the complexity and range of critical minerals processing activities, it is not feasible to include all relevant matters in the primary law, as industry may evolve over time. However, such matters may still be integral in making the decision to vary a registration and therefore require clarification in the law to ensure appropriate policy outcomes.

[Schedule 2, item 1, subsection 419-60(3) of the ITAA 1997]

2.91 In general, it is expected that the Industry Secretary would decide to vary the registration of an activity if the Industry Secretary is satisfied that the activity as varied would be entitled to registration.

2.92 The Industry Secretary must provide notice to the applicant and the Commissioner about any decision to vary the registration of an activity or any decision to reject an application to vary the registration of an activity.

[Schedule 2, item 1, subsections 419-60(4) and (5) of the ITAA 1997]

Transferring a registration

2.93 A company (the acquirer) can apply for the transfer of the registration of another company's (the disposer) activity, if:

•

it acquires one or more of the facilities used by another company to carry on the registered CMPTI processing activities;

•

the acquirer commences carrying on the activity at the facilities after the activity's registration as CMPTI processing activity has come into force; and

•

the disposer has ceased carrying on that activity.

2.94 The effect of transferring registration is that the activity ceases to be registered for the disposer and becomes registered for the acquirer. Where a transfer occurs part way through an income year, each entity may claim the CMPTI tax offset for their respective expenditure incurred in carrying on the activity while it was a registered CMPTI processing activity for that entity. Where a transfer occurs part way through an income year, each entity must also separately prepare an annual report.

2.95 If the disposer's registration of the activity has not come into force, for example, it has not made a choice to commence the 10-year period, the acquirer should apply to register the activity under the process for initial registrations discussed in paragraphs 2.48 to 2.51.

[Schedule 2, item 1, subsections 419-55(1) of the ITAA 1997]

2.96 The application for a transfer of a registration must be made in the approved form and within the period determined by the Industry Secretary by legislative instrument. This period must commence on the day of the acquisition and must continue for at least 30 days.

2.97 The application must include the same information as is required in an application for first-time registrations, as described in paragraph 2.48. The application also needs to identify the acquirer as the legal entity that is or will carry on the activities for which registration is to be transferred and must also be accompanied by any additional information, documents or other materials the Industry Secretary may require as well as any prescribed fees.

[Schedule 2, item 1, paragraphs 419-55(2)(a) to (d) and (f), subsection 419-55(3) and section 419-150 of the ITAA 1997]

2.98 The Industry Secretary has the same power to request information in relation to a transfer application as for applications for registration - see paragraph 2.50.

[Schedule 2, item 1, paragraph 419-80(1)(b) of the ITAA 1997]

2.99 Similar to applications for registrations, the Industry Secretary must transfer the registration of relevant activities to the acquirer if they have no reason to believe that:

•

the information provided by the acquirer is not true, correct and complete; or

•

the acquirer will not satisfy the eligibility requirements to claim the CMPTI tax offset in relation to the activity.

[Schedule 2, item 1, paragraph 419-55(2)(e) of the ITAA 1997]

2.100 The Industry Secretary must provide written notice of their decision on an application to transfer the registration to the acquirer, disposer and the Commissioner. If the Industry Secretary does decide to transfer the registration, this notice must also include a certificate of registration that reflects the transfer.

[Schedule 2, item 1, subsections 419-55(4) and (5) of the ITAA 1997]

2.101 Transferring the registration of an activity from one company to another does not refresh the 10-year entitlement period for the CMPTI tax offset in relation to those activities. The acquirer will be entitled to the remainder of the 10-year period from the original CMPTI commencement date. This applies to registered activities that have been transferred multiple times.

[Schedule 2, item 1, paragraph 419-50(4)(a) and subsection 419-50(5) of the ITAA 1997]

Disregarding registrations

2.102 In some cases, one company may be paid by another company to undertake processing activities. Both companies will incur expenditure - the first company on undertaking the processing activity and the second company on paying the first company.

2.103 Were both companies able to claim the CMPTI tax offset, there would be a double benefit for the same expenditure.

2.104 To address this, the amendments provide that the registration of an activity for a company will be disregarded for an income year if it is paid by another entity for carrying on the activity and the activity is or could be a registered CMPTI processing activity for the other entity or any constitutional corporation with which it is connected or affiliated, or of which it is an affiliate within the meaning of the income tax law.

2.105 The size and timing of the payment is not relevant for this purpose.

[Schedule 2, item 1, section 419-105 of the ITAA 1997]

CMPTI processing activities

2.106 The key requirement for an activity to be a registered CMPTI processing activity is the Industry Secretary must be satisfied that it is a CMPTI processing activity.

2.107 A CMPTI processing activity is:

•

a processing activity that is carried on at one or more facilities in Australia;

•

that either:

-

involves the substantial transformation of a feedstock containing a critical mineral through extractive metallurgical processing into a purer and chemically distinct form of the critical mineral, and a substantial purpose for carrying on the activity is to achieve this transformation; or

-

relates to critical minerals, is of a kind prescribed by the regulations, produces an outcome of a kind as prescribed by the regulations, and a substantial purpose for carrying on the activity is to achieve this prescribed outcome; and

•

is not an excluded activity.

2.108 While what constitutes a CMPTI processing activity will need to be considered in light of the particular facts and circumstances, it is a purposive concept. In many cases individual steps in a processing activity in the overall process may not individually satisfy the requirements, but the requirements apply to the overall processing activity, not each individual step.

[Schedule 2, item 1, subsections 419-20(1) and (2) of the ITAA 1997]

Processing activity carried on at one or more facilities located in Australia

2.109 To be a CMPTI processing activity, an activity must be a processing activity carried on at one or more facilities in Australia.

[Schedule 2, item 1, subsection 419-20(1) of the ITAA 1997]

2.110 "Processing activity" is not defined, and has its ordinary meaning as, broadly, a systematic set of actions to treat, prepare or modify an input for a particular end.

2.111 The phrase "carried on" is used frequently in the taxation law and it is intended that its established interpretations in other contexts will apply here.

2.112 "Facility" is not defined and is intended to take its ordinary meaning. In this context it means a physical location utilised for a particular purpose, here being processing activity. A singular facility may also host more than one registered CMPTI processing activity.

2.113 In this context, "Australia" includes Norfolk Island, the Coral Seas Islands, Ashmore and Cartier Islands, Christmas Island, Cocos (Keeling) Islands, Heard and McDonald Islands, and the coastal seas of Australia, but will not include any other external Territory - see section 960-505 of the Act and sections 2B and 15B of the Acts Interpretation Act 1901.

Substantial transformation through extractive metallurgical process and the regulation-making power

General definition

2.114 Only specified kinds of processing activities will qualify as CMPTI processing activities.

2.115 To satisfy the general definition, first, the activity must relate to a feedstock, a thing that is being processed, and this feedstock must contain a critical mineral.

2.116 Second, the processing activities must be a form of extractive metallurgical processing - that is the activity must be directed towards obtaining the critical minerals contained in the feedstock.

2.117 Thirdly, the activity must involve the substantial transformation of the feedstock into a purer or more refined form of the critical mineral. As a result, the outputs of the processing activity must be chemically different to the feedstock and at least one of the outputs must contain more of the critical mineral than the feedstock.

2.118 This means that, for example, the mechanical processing of ore to remove waste rock and dirt will not qualify as there has been no chemical change in the output. It also means that, for example, a process that solely involves the transformation of spodumene-a (an ore containing lithium) into spodumene-ß (a chemically distinct form of that ore) may not on its own constitute a CMPTI processing activity, if there is no material change in the proportion of lithium in the output. ^[5]

[Schedule 2, item 1, paragraph 419-20(1)(a) of the ITAA 1997]

2.119 Whether a transformation of a feedstock to an output is a substantial transformation needs to be considered in the specific metallurgical and commercial context. However, a process that simply results in an incremental one per cent increase in purity of a low purity feedstock would be unlikely to constitute a substantial transformation.

Additional activities specified in the regulations

2.120 Even if a processing activity does not meet these requirements, it will still be a CMPTI processing activity if it relates to critical minerals and is an activity of a kind prescribed in regulations.

[Schedule 2, item 1, paragraph 419-20(1)(b) of the ITAA 1997]

2.121 This power is necessary to accommodate the variety of processing activities that can occur in relation to critical minerals and that it is intended that the CMPTI tax offset incentivise, but which may not meet the general definition discussed above.

2.122 Given the range and complexity of both critical mineral and processing activities as well as the constant evolution of technology used in these activities, it is not possible to guarantee that any principle will appropriately address all processing activities being undertaken now and in the future.

2.123 Additionally, where special rules are required by the nature of the mineral in question, it is anticipated that the rules may require a level of technical detail more appropriately reserved for subordinate legislation.

2.124 This is complemented by a similar power to exclude activities, discussed below.

2.125 The regulations would be subject to parliamentary scrutiny, including disallowance and sunset after no more than 10 years.

Substantial Purpose

2.126 In addition to the other requirements, for an activity to be a CMPTI processing activity, one of the substantial purposes for carrying out the activity must be producing the substantial transformed critical mineral output outlined in paragraphs 2.114 to 2.119 or achieving the outcome prescribed in the regulations.

2.127 This does not have to be the sole or dominant purpose for carrying out the processing activity. Instead, the term 'substantial' is used in this provision 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.

2.128 It is sufficient if this purpose is one of a number of purposes, provided that it is a substantial purpose. This means that, for example, processing activities that produce critical minerals as one of several valuable outputs may still be CMPTI processing activities if the other requirements are met.

2.129 The mere fact that a processing activity produces a purer form of a critical mineral does not mean that this is a substantial purpose for which the activity is carried out. Instead, the production of the purer form of the critical mineral must have been a desired goal rather than an incidental consequence or by-product.

2.130 In the context of this provision, the word 'purpose' looks to the effect which is sought to be achieved, including the immediate intended result. Whether an activity is undertaken with such a substantial purpose is to be determined based on the facts and circumstances of the activity. However, given these activities are being undertaken by a company in a commercial context, the fact that an output does not produce any substantial value for the company will be strong evidence that the production of the output is not a substantial purpose of a processing activity carried on by the company.

2.131 This substantial purpose test is intended to exclude processing activities that produce critical minerals as a waste product or as an incidental by-product. For example, the production of gold may produce arsenic (a critical mineral - see paragraphs 2.132 and 2.136), which is then disposed of as a waste product. The CMPTI tax offset is not intended to incentivise such activities, as they do not advance downstream critical minerals processing.

Critical mineral

2.132 Both processing activities that meet the 'extractive metallurgical processing requirement' or which are of a kind specified in the regulation must involve a critical mineral. A "critical mineral" is a thing that is either included in the list specified in the legislation or is prescribed in regulations.

2.133 The list of minerals specified in the legislation reflects Australia's Critical Minerals List, on the website of DISR, as at 14 May 2024. Any minerals added to or removed from the Critical Minerals List after this time will not automatically result in changes to the status of critical minerals in the legislation for the purposes of the CMPTI tax offset.

2.134 This list is set out below. The listed minerals can be categorised into general critical minerals, platinum-group elements, and rare earth elements. Paragraph or sub-paragraph references in column 1 of the table below are to the relevant provisions of the Bill.

[Schedule 2, item 1, section 419-15 of the ITAA 1997]

Table 2.1 - Critical minerals list

2.135 The power for regulations to specify other things as critical minerals for the purposes of the CMPTI is required to ensure that the CMPTI tax offset can continue to be updated to reflect changing global conditions. For example, if the supply chain for another material is suddenly threatened by an unforeseen global event, it may be desirable to add that material to this list to incentivise domestic production of the material. This would ordinarily, though not necessarily, follow the listing of that mineral on Australia's Critical Minerals List.

[Schedule 2, item 1, paragraph 419-15(zf) of the ITAA 1997]

2.136 As noted above, any regulations made for this purpose will be legislative instruments, subject to requirements including tabling in both Houses of Parliament and disallowance under section 38 of the Legislation Act.

Excluded activities

2.137 However, a processing activity will not be a CMPTI processing activity if it is or includes an excluded activity.

2.138 The excluded activities are:

•

mining - that is, the process of extracting ores or other resources from the earth.

•

beneficiation - that is, the dressing or processing of ore by mechanical means such as grinding, crushing, floating.

•

manufacturing - that is, the production of goods valuable for reasons other than their mineral content (manufacturing is used with its ordinary meaning in this context, consistent which does not include refining and some other activities considered manufacturing for the purposes of the Australian and New Zealand Standard Industrial Classification (ANZSIC) code).

•

activities contrary to Australian law.

•

other activities prescribed in regulations for this purpose.

[Schedule 2, item 1, subsection 419-20(2) of the ITAA 1997]

2.139 In many cases these activities would not, in any case, involve extractive metallurgical processing or a substantial transformation of the feedstock and so would not meet the requirements to be a CMPTI processing activity. However, they have been specifically excluded to provide clarity to stakeholders and address ambiguous cases.

2.140 It does not matter if these excluded activities occur as part of a wider processing activity. If an activity involves one of these excluded activities it is not a CMPTI processing activity. For example, even if undertaken as part of a unified process, the beneficiation of ore through crushing and froth floatation prior to processing cannot be a CMPTI processing activity.

2.141 The regulation making power is included as given the range and complexity of both critical mineral and processing activities as well as the constant evolution of technology used in these activities, it is not possible to guarantee that any principle will appropriately addresses all processing activities being undertaken now and in the future. It provides a mechanism to ensure that the CMPTI tax offset does not end up supporting activities not substantially related to critical minerals processing or which are found to cause unacceptable harm to communities or the environment.

2.142 Additionally, where special rules are required by the nature of the mineral in question, it is anticipated that the rules may require a level of technical detail more appropriately reserved for subordinate legislation.

2.143 This is complemented by a similar power to include activities, discussed at paragraph 2.120.

2.144 The regulations would be subject to parliamentary scrutiny, including disallowance and sunset after no more than 10 years.

2.145 The exclusions for beneficiation and manufacturing do not apply to activities that are prescribed as CMPTI processing activities in regulations made for the purposes of these provisions. This ensures that should these exclusions give rise to ambiguity for any new forms of critical minerals processing, this can be appropriately addressed in the regulations.

[Schedule 2, item 1, paragraphs 419-20(2)(b) and (c) of the ITAA 1997]

2.146 No such exclusion is required for mining or unlawful activities which are intended to be strictly and categorically excluded, or activities excluded by the regulations, which can be addressed in the drafting of the regulations.

[Schedule 2, item 1, subsection 419-20(2) of the ITAA 1997]

CMPTI expenditure

2.147 For a company to be entitled to the CMPTI tax offset for an income year, it must have incurred CMPTI expenditure for the income year.

[Schedule 2, item 1, paragraph 419-5(1)(d) of the ITAA 1997]

2.148 CMPTI expenditure for an income year is expenditure to the extent that it is:

•

incurred during the income year in carrying on one or more of the company's registered CMPTI processing activities for the income year, at facilities specified in the certificates of registration for those activities; and

•

not excluded expenditure.

[Schedule 2, item 1, subsections 419-25(1) and (2) of the ITAA 1997]

General rules for expenditure

2.149 To be CMPTI expenditure for an income year, expenditure must be incurred by the company in that income year. It does not matter at what time the registered CMPTI processing activity to which the expenditure relates occurred, only that the activity is registered for the income year during for which the company claims the CMPTI tax offset. It does not include expenditure incurred by other entities, even if the other entity does so on behalf of the company.

2.150 When expenditure is "incurred" has an established interpretation for the purposes of taxation law, and in brief relates to when the taxpayer definitely commits themselves to the expenditure.

2.151 However, if expenditure is incurred by the company to another entity, and this transaction is not at arm's length, or if it is incurred to an associate (within the meaning of section 318 of the ITAA 1936) - such expenditure is only CMPTI expenditure if it is actually paid during the income year for which the company claims the CMPTI tax offset. Therefore, notional payments or promises to pay an amount may be insufficient. There are also additional integrity rules that apply to intra-group mark ups or non-arm's length transactions discussed below from paragraph 2.246.

[Schedule 2, item 1, paragraph 419-25(1)(b) of the ITAA 1997]

2.152 Additionally, the activity in relation to which the expenditure is incurred must be a registered CMPTI processing activity for that income year. Even if a processing activity was previously a registered CMPTI processing activity or becomes a CMPTI processing activity for a later income year, expenditure relating to the activity will not be CMPTI processing expenditure if it is incurred in an income year for which that activity is not registered.

2.153 This requirement that the expenditure is incurred in carrying on registered CMPTI processing activities makes use of concepts with established interpretation for the purposes of taxation law. To satisfy the requirement the expenditure must have a sufficient connection to the registered CMPTI processing activity.

2.154 Whether particular expenditure is incurred in carrying on the relevant company's registered CMPTI processing activity will depend upon the nature of the expenditure and the activity in question. However, in general, the costs of obtaining reagents required for a processing activity, including the costs of transporting the reagents, and of disposing of waste generated by the activity will be costs incurred in carrying on the relevant activity.

2.155 In determining an amount of expenditure incurred for the purpose of the CMPTI tax offset, the expenditure excludes the amounts paid relating to goods and services tax (GST). This replicates similar provisions in other refundable tax offsets, in particular for tax offsets for Australian film production expenditure (section 376-185 of the ITAA 1997) and for the digital games tax offset (section 378-50 of the ITAA 1997). It ensures the CMPTI tax offset is not available for amounts for which the company may be entitled to an input tax credit.

[Schedule 2, item 1, section 419-30 of the ITAA 1997]

Excluded expenditure

2.156 However, CMPTI expenditure does not include any expenditure the company incurs to the extent that the expenditure is of specific kinds, discussed below, even if this expenditure may meet the general definition.

[Schedule 2, item 1, subsection 419-25(2) of the ITAA 1997]

Capital

2.157 Expenditure is not CMPTI expenditure to the extent that it is capital, or is of a capital nature.

[Schedule 2, item 1, paragraph 419-25(2)(a) of the ITAA 1997]

2.158 Capital expenditure and expenditure of a capital nature are well-understood concepts in the taxation law. In particular, the exclusion of this kind of expenditure from being CMPTI expenditure mirrors the non-deductibility of losses or outgoings of capital, or of a capital nature, in paragraph 8-1(2)(a) of the ITAA 1997. The exclusion also picks up expenditure on capital works as dealt with in Division 43 of the ITAA 1997, such as costs to construct buildings or to make structural improvements.

2.159 As capital expenditure is typically one-off significant expenditure that precedes processing or particular processing activity, regardless of the output produced from ongoing processing activity, excluding capital expenditure ensures that the CMPTI tax offset is targeted to the ongoing and scalable expenditure of processing activity that increases the supply and export of value-added critical minerals targeted by the CMPTI tax offset.

Depreciation

2.160 Expenditure is not CMPTI expenditure to the extent that it is taken into account when calculating the decline in value of an asset for the purposes of a taxation law.

[Schedule 2, item 1, paragraph 419-25(2)(b) of the ITAA 1997]

2.161 In most cases, it is expected that expenditure taken into account in this way will be amounts used to work out the decline in value of depreciating assets under Division 40 of the ITAA 1997. However, the exclusion captures decline in value calculated for the purposes of the taxation law generally.

2.162 The exclusion of depreciation expenditure supports and serves a similar purpose to the exclusion of capital expenditure or expenditure of a capital nature. While depreciation does not involve recognition of significant upfront expenditure, the inclusion of expenditure reflecting depreciation of capital assets would nonetheless be contrary to the purpose of the CMPTI in targeting the ongoing and scalable expenditure of processing activity that increases the supply of value-added critical minerals.

Financing

2.163 Expenditure is not CMPTI expenditure to the extent that it is incurred by way of, or in relation to, the financing of registered CMPTI processing activities. Financing expenditure will take its ordinary meaning. It will include, but is not limited to, interest, payments in the nature of interest, and borrowing charges.

[Schedule 2, item 1, paragraph 419-25(2)(c) of the ITAA 1997]

2.164 The exclusion of financing expenditure supports and serves a similar purpose to the exclusion of capital expenditure or expenditure of a capital nature, and exclusion of depreciation expenditure, both discussed above. These are not the ongoing and scalable costs of directly undertaking processing activities but indirect costs linked to funding these activities.

Feedstock

2.165 Expenditure is not CMPTI expenditure to the extent that it is on feedstock.

[Schedule 2, item 1, paragraph 419-25(2)(d) of the ITAA 1997]

2.166 Feedstock, in the context of the CMPTI tax offset, has its ordinary meaning, in brief referring to the initial input containing the critical minerals used by the company to process critical minerals as part of the registered CMPTI processing activity. What will constitute feedstock in a particular case will depend on the general processes for extractive metallurgical processing of the critical mineral in question as well as the precise registered processing activity to be undertaken by a company.

2.167 However, feedstock does not include materials such as reagents or catalysts that are used in processing activities to assist in the extraction of the critical mineral but do not contain the mineral.

2.168 The legislation gives two examples of feedstock, being raw materials (such as ores or mineral concentrates) and intermediate outputs from a previous processing step.

2.169 Ores are naturally occurring resources comprising a valuable mineral or minerals, embodied in a host material made up mainly of rocky substances or sediments. Mineral concentrate, also known as ore concentrate, is the product generally produced from ore mines after basic crushing, waste removal or beneficiation or ore.

2.170 Some feedstocks will also be intermediate outputs from previous processing undertaken by another entity. An example is smelted nickel matte, which is a feedstock for the processing of pure nickel, a critical mineral. Another example is lithium battery 'black mass' which can be used as a feedstock for producing critical minerals including lithium, cobalt and nickel.

2.171 However, intermediate outputs will only be feedstock where these are acquired from another entity as the initial input to a processing activity by a company. Feedstock does not include the outputs of the company's own early-stage processing activities where the output is further processed as part of the same CMPTI processing activity. This is because in, this context, the feedstock is the feedstock for the overall activity. This is the initial input containing critical minerals. The fact that over this process the initial input is transformed a number of times does not change what the feedstock was for the overall activity.

2.172 The Australian mining industry already has highly developed capability in preparation and beneficiation of ore and mineral concentrates. As noted above, it is the intent of the CMPTI tax offset to move industry further along the supply chain, to processing activity that performs a substantial transformation of critical minerals for subsequent use in manufacturing and other critical supply chains or purposes. Accordingly, it is not the intent of the incentive to subsidise expenditure associated with mining and otherwise obtaining feedstock.

2.173 While this category of excluded expenditure does not preclude vertical integration of processing activity, and either physical or operational collocation of registered CMPTI processing activities and mining or beneficiation activities, a company that incurs expenditure in obtaining feedstock, including through mining and beneficiation, cannot claim the CMPTI tax offset for that expenditure.

Intellectual Property

2.174 Expenditure that is incurred on or in relation to intellectual property are also excluded to the extent that the expenditure on or in relation to intellectual property would constitute more than 10 per cent of the company's CMPTI expenditure for the income year. Amounts of expenditure on or in relation to intellectual expenditure constituting 10 per cent or less of a company's CMPTI expenditure may be included to the extent those amounts are CMPTI expenditure.

[Schedule 2, item 1, paragraph 419-25(2)(e) of the ITAA 1997]

2.175 Intellectual property is defined in subsection 995-1(1) of the ITAA 1997 and includes rights under a Commonwealth law as a patentee or licensee of a patent, registered design or copyright.

2.176 This cap reflects the policy intent to directly support processing activities. Intellectual property costs, such as licensing fees, should at most be a small component of the expenditure incurred on or in relation to a processing activity that increases the supply and export of value-added critical minerals. The exclusion also addresses risk integrity of the CMPTI tax offset arising from the scope for structuring of intellectual property arrangements.

Excluded by regulations

2.177 Expenditure is not CMPTI expenditure to the extent that it of a kind prescribed by the regulations.

[Schedule 2, item 1, paragraph 419-25(2)(f) of the ITAA 1997]

2.178 Similarly with other regulation-making powers created by this Division, this power is necessary to accommodate the variety of types of expenditure that may arise with the development of the critical minerals processing industry, but that it is not appropriate for the CMPTI tax offset to subsidise. This is particularly the case where the appropriate models, ownership and control structures, financial and commercial arrangements, and governance of critical minerals processing ventures, as well as the integrity risks they pose, is unclear and likely to evolve significantly over the time limited period during which the CMPTI is in effect. It is therefore, as noted above, not possible to guarantee that any principle will appropriately addresses all kinds of expenditure covered by the definition of CMPTI expenditure (discussed in paragraphs 2.147 to 2.155), undertaken now and in the future.

2.179 As noted above, the regulations would be subject to parliamentary scrutiny, including disallowance and sunset after no more than 10 years.

Apportionment of expenditure

Valuable non-critical outputs and waste

2.180 Registered CMPTI processing activities will often result in more than one output.

2.181 In many cases, one of more of these outputs will not contain a purer or more refined form of any critical mineral (a "non-critical output").

2.182 In some cases, the outputs that do not contain the critical mineral will have no value and constitute waste. There is no requirement to apportion expenditure merely because a registered CMPTI processing activity produces waste. Expenditure associated with waste arising solely from the production of a critical mineral is considered CMPTI expenditure. This recognises that the production of waste is an undesired cost, not an objective.

2.183 However, in some circumstances the non-critical outputs are not waste. A company with non-critical outputs must reasonably apportion its expenditure on the registered CMPTI processing activity between the critical minerals output and the non-critical output, if the company disposes of the non-critical output, or uses the non-critical output to produce another output that is disposed of:

•

for value; or

•

in a dealing with another entity that not conducted at arm's length; or

•

to an associate.

[Schedule 2, item 1, subsection 419-25(3) of the ITAA 1997]

2.184 The first circumstance in which the apportionment requirement will apply is where an activity involves the production of both a purer or more refined form of a critical mineral and some other valuable substance. This recognises that some part of the expenditure is attributable to the production of the valuable non-critical output. It ensures that the CMPTI tax offset is not available in respect of expenditure that is appropriately attributed to the production of that other output.

2.185 The second and third circumstances are integrity rules to ensure that companies cannot artificially inflate the value of CMPTI expenditure by structuring transactions involving non-critical outputs through non-arms length arrangements. Any disposal of a non-critical output that involves non-arm's-length dealing, or to an associate, will require the apportionment of the expenditure between all of the outputs of the registered CMPTI processing activity on a reasonable basis, with the expenditure attributable to the non-critical output being excluded expenditure.

2.186 "Arm's length" and "associate" have generally applicable definitions set out in section 995-1 of the ITAA 1997 and section 318 of the ITAA 1936 respectively.

2.187 Expenditure that is apportioned to a non-critical output is not CMPTI expenditure.

2.188 If apportionment is required, it must be done on a reasonable basis, requiring the determination of what reasonable attributable to the non-critical output. While what is reasonable will depend upon the particular facts, it will usually require consideration of the significance of each output to the expenditure being incurred (with undesirable outputs such as waste disregarded). In some cases, it may be clear that the non-critical output has no or negligible value (for example, if it is in substance waste but was provided to a related entity for disposal), and in these cases it may be reasonable to apportion little or no expenditure to the non-critical output.

Other apportionment

2.189 In addition to non-critical outputs, there will also be other cases in which a loss or outgoing is incurred where only part of the loss or ongoing relates to the carrying on of a registered CMPTI processing activity.

2.190 Since expenditure is only CMPTI expenditure to the extent that it is covered by the definition discussed in paragraphs 2.149 and 2.155 and is not excluded expenditure, it may be necessary to apportion expenditure so that the CMPTI tax offset is calculated and claimed only on that parts that relates to CMPTI expenditure. Where this is required, apportionment must be reasonable in the circumstances. Several examples of where apportionment would be required are provided here.

2.191 Expenditure may relate to one or more activities, only some of which may be registered CMPTI processing activities. Similarly, expenditure may relate to one or more CMPTI processing activities, only some of which are registered. An example of this second case is where the CMPTI processing activity extends across two income years, but only the first income year is within the 10-income-year window during which an activity may be registered for a company (registration can only continue for 10 income years - see section 419-50). The company would need to reasonably apportion expenditure and only claim in respect of that part of the expenditure that related to the activities that were registered CMPTI activities.

2.192 Where a company's expenditure relates to registered CMPTI processing activities, but some of those activities occur at a facility specified in the company's registration and some occur at another facility, the company would need to reasonably apportion expenditure and only claim in respect of that part that related to the activities the occurred at the first, registered facility.

2.193 Expenditure may relate partly to the processing of critical minerals, and also relate to the processing of valuable, non-critical outputs or byproducts of CMPTI processing activity. For example, a company's registered CMPTI processing activity in relation to certain rare earth minerals may necessarily result in recovering gold which the company also disposes of for value. In this case, the company would have to reasonably apportion expenditure and not claim in respect of so much of the expenditure as related to the processing of the gold.

2.194 Part of an amount of expenditure may be CMPTI expenditure and the rest may be excluded expenditure. The CMPTI tax offset can only be claimed in respect of the part that is CMPTI expenditure. For example, if a company incurs an amount of expenditure part of which relates to feedstock, but the rest of the amount relates to the direct costs of preparing that feedstock and using it in carrying on registered CMPTI processing activities, the two amounts must be apportioned and the amount relating to feedstock cannot be used to calculate the company's CMPTI tax offset.

Period for which the CMPTI is available

2.195 The CMPTI tax offset is available for an activity for a period of up to 10 consecutive income years.

[Schedule 2, item 1, subsection 419-50(1) of the ITAA 1997]

2.196 The company may choose that this period of registration for an activity begins either:

•

at the start of the income year in which the Industry Secretary first receives the application for registration of a CMPTI processing activity; or

•

at the start of a later income year.

[Schedule 2, item 1, subsection 419-50(2) of the ITAA 1997]

2.197 The company does not need to notify the Commissioner of this choice. However, similar to choices made for the purposes of capital gains tax, how a company completes its income tax return is sufficient evidence that is has made a choice. This means that, for example, a company claiming the CMPTI tax offset for an activity in a tax return for an income year will demonstrate that the company chose for the registration period to commence for that activity for that income year.

2.198 Any choice as to the commencement of the 10-year period is irrevocable and cannot be varied.

[Schedule 2, item 1, subsection 419-50(3) of the ITAA 1997]

2.199 The registration period expires at the end of the ninth consecutive income year following this income year. The registration period cannot be paused or extended, even if processing activities cease, the registration of the activity is transferred or the registration of the activity is suspended or revoked for some or all of the period.

[Schedule 2, item 1, subsections 419-50(1) and (2) of the ITAA 1997]

2.200 If the day that the Industry Secretary received the application that resulted in the first registration for a registered CMPTI processing activity falls in the 2028-2029 income year, and the registration holder claims the CMPTI tax offset in its tax returns for the 2028-29 year, then the last income year that the CMPTI tax offset could possibly be available in relation to that registered CMPTI processing activity would be the 2037-2038 income year.

2.201 The period commencing from the start of the income year in which the Industry Secretary first receives the application that results in registration ensures that an eligible company can claim the CMPTI tax offset for the income year in which they first submitted the application, even when the Industry Secretary does not register the activity until the following income year.

2.202 If an activity is transferred or re-registered after the original registration period had started, for example because registration for that activity was revoked for that period, then the registration:

•

comes into force at the start of the income year that includes the day the Industry Secretary receives the transfer or re-registration application; and

•

as noted above, ceases to be in force at the end of the registration period that applied when the activity was first registered - specifically, at the same time as the time the first registration of the activity under for any company would have ended if that first registration had continued for its full 10-year period.

[Schedule 2, item 1, subsections 419-50(4) and (5) of the ITAA 199 7]

Similar activities

2.203 If the Industry Secretary decides that a registered CMPTI processing activity is similar to another registered CMPTI processing activity or a previously registered CMPTI processing activity then the registration date for both activities ends at the same date - the first date the registration period for either activity would have ended.

[Schedule 2, item 1, subsection 419-50(6) of the ITAA 1997]

2.204 It is irrelevant whether the other activity is currently a registered CMPTI processing activity. It is also irrelevant whether either activity is currently being carried on.

2.205 In this context, 'similar' does not merely mean that the activity involves the same mineral or chemical process. Instead, an activity must be similar when viewed in light of the assets and facilities used or proposed to be used in carrying on the activity, the processes and operations it involved or is proposed to involve and the inputs to and outputs of the activity. If the activities are being carried on by different companies, regard must also be had to the nature of any arrangements between the companies regarding the activities. Due to the complexity and range of critical minerals processing activities, it is difficult to include all considerations that may be relevant to this decision. The ability to prescribe relevant considerations can accommodate for developments in this industry, such as advances in technology.

[Schedule 2, item 1, subsection 419-50(7) of the ITAA 1997]

2.206 Being similar means that there must be a substantial similarity between the two activities (or between one of the activities and a part of the other activity) considered across most or all of these factors. The two activities must largely involve doing the same things to the same feedstock in the same places. However, complete consistency is not necessary - the activities need only be similar, not entirely the same. In this respect the test is aligned with the similar business test for the availability of losses, set out in section 165-211 of the ITAA 1997.

2.207 On the extent to which the assets and facilities used in carrying on one activity are used in carrying on the other activity, the use of new standalone processing equipment or assets, for example, would point away from the new activity being a similar activity. Similarly, the use of existing assets and equipment, even with some modifications, would point towards it being a similar activity. The extent to which any new assets may rely on assets or infrastructure from the existing processing activity is also a relevant consideration.

2.208 On the extent to which the processes and operations undertaken as part of one activity are the same as those undertaken as part of the other activity, a new processing flowsheet, for example, would point away from being a similar activity whilst a modification to the existing processing flowsheet would point towards it being a similar activity.

2.209 On the extent of similarity between the inputs to and outputs of the activities, this factor is not directed simply toward feedstock having the same chemical composition. While the fact that inputs and outputs are substantially chemically distinct (for example if the new activity produces nickel rather than lithium) would clearly mean that the activities are not similar, the fact that the input and outputs have the same composition would not justify a conclusion that the activities are similar in this context. Instead, this factor also involves consideration of whether the materials that would have been transformed in the earlier activity are now being used in the new activity. If a batch of feedstock used in a processing activity is independent of a feedstock batch that is used in an earlier processing activity, then this would point away from it being a similar activity.

2.210 The most common case in which activities are similar activities involves a similar activity replacing the previous activity to which it is similar. However, in some cases, both similar activities may be carried on at the same time. For example, in an unincorporated joint venture involving joint processing, the activities of each participant are very likely to be similar activities.

2.211 The question of similarity may arise where one activity represents an expansion of existing processing activities. While this will need to be considered in light of the particular facts and circumstances, where an expansion is sufficiently separate and distinct from the original activity, it may well not be a similar activity in the sense that is being used here. While the nature of the process may be the same, it will have separate assets or facilities as well as distinct inputs and outputs (even if they may be the same materials).

2.212 As discussed in relation to registration, an activity is specifically constituted by the details of the processing activities that are to be carried on. This rule ensures that minor changes to these details will not result in an effective extension of the 10-year period (being in substance a variation to the earlier registration). It provides a simpler and more practical test than requiring the Industry Secretary and companies to engage exhaustively with the detail of what is registered to determine if two activities are the same activity.

Example 2.1 Example of a similar activity

In 2027-2028, Company A produces separated rare earth oxides from monazite concentrate feedstock sourced from its own mining operation. The company uses its own extractive metallurgical processing facility to produce separated rare earth oxides.

Company A applies to the Industry Secretary who makes a decision to register Company A's separated rare earth oxide processing activity as a CMPTI processing activity commencing in 2027-28. The registration is valid for 10 years until 2036-37.

In 2036-37, Company A sources monazite feedstock (essentially the same quality and chemical composition as their own mineral concentrate) from other rare earth mining companies in Australia in order to increase production levels from their facility. Only minor changes to Company A's solvent extraction process (increased temperatures and pressures) are made to produce separated rare earth oxides of an acceptable standard.

In 2036-37, Company A applies to register its modified separated rare earth oxide processing activity as a new CMPTI processing activity,. At the time of registration, the Industry Secretary determines that the modified processing activity is similar to the registered CMPTI processing activity. The Industry Secretary makes this determination as:

•

The extractive metallurgical processing line equipment used in the modified processing activity is the same equipment that is used in carrying on the registered CMPTI processing activity.

•

A new flowsheet was not required as only minor changes have been made to the solvent extraction process. The processes and operations undertaken as part of the modified processing activity are substantially the same as those undertaken as part of the registered CMPTI activity.

•

Minor changes were made to Company A's feedstock profile, however the batch of feedstock that goes into the same line equipment for the modified activity is the same batch of feedstock which is used for the registered activity.

Since the modified processing activity has been determined to be similar to the registered CMPTI processing activity, the registration end date for both activities is 30 June 2037.

Example 2.2 Example of an activity that is not similar

In 2027-2028, Company B produces lithium hydroxide from spodumene concentrate using its own extractive metallurgical processing line (Train 1).

Company B applies to the Industry Secretary who makes a decision to register Company B's Train 1 as a CMPTI processing activity from 2027-2028 with a registration end date of 30 June 2037.

In 2031-2032, Company B commences construction of a new lithium hydroxide processing line (Train 2). Train 2 uses the spodumene feedstock from the same source as Train 1. Train 2 also uses the same type of extractive metallurgical processing equipment to produce the same output as Train 1.

In 2034-2035 Company B is producing lithium hydroxide from Train 1 and Train 2.

In 2034-2035, Company B applies to the Industry Secretary for Train 2 to be registered as a new CMPTI processing activity. The Industry Secretary considers that the modified processing activity is not similar to the registered CMPTI processing activity and decides not to make a similar activity determination at this time. The relevant considerations for the Industry Secretary in reaching this decision include:

•

Although the processing line equipment used in Train 2 is the same type of equipment used for Train 1, the equipment in Train 2 is new and is not used for carrying on the activities for Train 1.

•

Although the processes and operations undertaken as part of Train 2 are the same type of processes and operations undertaken as part of Train 1, a new flowsheet for Train 2 is required as it is functionally distinct, with its processes operating separately to Train 1.

•

Train 2 uses a sub-batch of the same type of feedstock used for Train 1, however the Train 2 sub-batch of feedstock used in the Train 2 processing line equipment is not the same sub-batch that is used in the Train 1 processing line equipment. Rather than simply replacing some or all of the processing done by Train 2, the combined inputs and outputs of the two trains are now double what they were.

The Industry Secretary registers Train 2 as a registered CMPTI processing activity in 2034-35 with a registration end date of 30 June 2040.

Limited availability of the CMPTI for income years

2.213 The CMPTI tax offset is only available for income years beginning on or after 1 July 2027, and ending on or before 30 June 2040. This is true even if, as a result, the registration period for a particular registered CMPTI processing activity has been less than ten years.

[Schedule 2, item 1, paragraph 419-5(1)(b) of the ITAA 1997]

2.214 The CMPTI tax offset is intended to provide support for the establishment of the critical minerals processing industry in Australia. The limited duration of availability is intended to reward early commitment and support projects in the establishment and early processing phases.

Administration of the CMPTI

Administrative arrangements between the ATO and DISR

2.215 As discussed in paragraphs 2.46 to 2.101, the Industry Secretary will be responsible for administering the registration of CMPTI processing activities.

2.216 The Industry Secretary is defined in the ITAA 1997 as the Secretary of the Industry Department. The Industry Department is defined as the Department administered by the Minister administering the Industry Research and Development Act 1986. As of November 2024, this is DISR.

2.217 The Industry Secretary is given power to delegate, in writing, all or any of their powers under the amendments, including the powers to register CMPTI processing activities and vary registration, to an SES employee or acting SES employee, in the Industry Department. "SES employee" and "acting SES employee" are defined in the Public Service Act 1999. This power to delegate powers helps ensure that applications in relation to applications and the provision of late material can be progressed in a timely manner by persons possessing the appropriate training, skills and experience to undertake the required assessments in making these decisions.

[Schedule 2, item 1, section 419-155 of the ITAA 1997]

2.218 The Industry Secretary can also approve a form, by notifiable instrument, for the following purposes: an application to register an activity, to transfer a registration and to vary a registration, in relation to the content of an annual report about a registered CMPTI processing activity, a request for further information, an application to provide late material (the late provisions of an annual report or further information that has been requested), and an application for to review a reviewable decision by the Industry Secretary.

[Schedule 2, item 1, section 419-150 of the ITAA 1997]

2.219 The Commissioner remains responsible for administering the income tax law, including claims for the CMPTI tax offset included in the income tax return. Therefore, while the Industry Secretary is responsible for registering CMPTI processing activities, the Commissioner is responsible for determining if particular expenditure is CMPTI expenditure.

2.220 The CMPTI tax offset will generally be self-assessed, and the process for which such assessments and audits are conducted will be the same as under the existing Australian income tax law framework.

2.221 However, the Commissioner can amend the assessment given to a company in relation to the CMPTI tax offset, as appropriate, if the registration of an activity for that company has been transferred, varied, suspended or revoked. The Commissioner is not prevented by the time limits to amend assessments set out in section 170 of the ITAA 1997. As companies will be eligible to claim the CMPTI tax offset between 1 July 2027 and 30 June 2040, such flexibility is intended to maintain the integrity of this offset. Should a company's entitlement to the CMPTI tax offset change due to an alteration to their registration or de-registration, the Commissioner will be able to amend the relevant assessment accordingly.

[Schedule 2, item 1, section 419-90 of the ITAA 1997]

2.222 Companies claiming the CMPTI tax offset are subject to all of the existing tax obligations, including the requirement to keep records that explain all transactions and other acts engaged in by the company that are relevant for the purposes of the income tax law (see section 262A of the ITAA 1936). For the CMPTI, this may include, for example, the results of the output testing conducted on products.

2.223 The two regulators may each request the other to provide information they may have relating to the CMPTI tax offset, which is reasonably necessary or convenient for the administration of the offset. The other regulator must comply with this request.

2.224 This amendment ensures that the two regulators can effectively co-operate and share information to best administer the CMPTI tax offset. It does not extend to the sharing of information beyond what is necessary or convenient for the administrative of the CMPTI tax offset.

[Schedule 2, item 1, section 419-140 of the ITAA 1997]

2.225 The Commissioner must also publicly report the following information about companies that have indicated they are entitled to claim the CMPTI tax offset for an income year: the company's name, its ABN and the amount of its CMPTI tax offset for that income year. The Commissioner must report this information as soon as practicable after the second 30 June after the financial year that corresponds to the income year during which the company is entitled to claim the CMPTI tax offset.

2.226 Consistent with the arrangements for the research and development tax incentive, the Commissioner may publish information on an entity for an income year for which the entity claims the CMPTI tax offset even if the entity is later found not be entitled to the CMPTI tax offset for the income year.

2.227 The company may notify the Commissioner in the approved form if there is an error in the information, including an appropriate correction of the error. The Commissioner may make the correction publicly available at any time, Further, if the Commissioner is satisfied that the reporting of the required information is incomplete, his Commissioner at any time make publicly available other information to correct this failure.

[Schedule 2, item 15, section 3K of the TAA 1953]

2.228 This reporting serves as a transparency mechanism to maintain the integrity of the CMPTI tax offset by making public what support has been provided to which entities.

Review entitlements

2.229 Companies are entitled to administrative review of decisions made by the Industry Secretary or the Commissioner under these amendments.

2.230 For relevant decisions by the Commissioner, taxpayers' existing objection, review and appeal rights under Part IVC of the TAA 1953 will continue to apply.

2.231 No existing mechanism exists for decision of the Industry Secretary. To address this, Schedule 2 to the Bill includes amendments to provide for internal review and review by the Administrative Review Tribunal.

2.232 The process for internal review of decisions by the Industry Secretary is based on the existing provisions of the Industry Research and Development Act 1986.

2.233 Decisions made by the Industry Secretary for which review is available include decision about registering an activity, whether an activity is similar to another activity, transferring a registration, varying a registration, refusing to accept late material, revoking a registration and refusing to allow a further period to apply for an internal review.

[Schedule 2, item 1, section 419-110 of the ITAA 1997]

2.234 The Industry Secretary must provide written notice to a company when making a reviewable decision in relation to the company. This notice must notify the company of its right to have the decision reviewed. The validity of this decision is not affected by a failure of the Industry Secretary to give such notice.

[Schedule 2, item 1, subsections 419-115(1), (2) and (4) of the ITAA 1997]

2.235 The company or Commissioner may request in writing that the Industry Secretary to provide a statement of reasons for the decision. The Industry Secretary must comply with this request.

[Schedule 2, item 1, subsection 419-115(3) of the ITAA 1997]

2.236 A company may obtain internal review of a decision by the Industry Secretary by applying in the approved form. The application must be made within 28 days after the company is provided written notice of the decision or a further period as allowed by the Industry Secretary.

[Schedule 2, item 1, subsections 419-120(1) to (3) of the ITAA 1997]

2.237 The Commissioner can also apply to the Industry Secretary for an internal review. This ensures that should the ATO have any concerns, when conducting compliance activities, about the correctness of a claimant's registration, it can seek assurance that the activities on the entity's registration meet the legislative requirements of CMPTI processing discussed in paragraphs 2.106 to 2.146.

[Schedule 2, item 1, subsection 419-120(4) of the ITAA 1997]

2.238 The Industry Secretary may request the applicant to give specified information, or specified kinds of information, to the Industry Secretary about the application.

2.239 On receipt of an internal review application, the Industry Secretary must review the decision, and:

•

confirm the reviewable decision; or

•

vary the decision; or

•

set aside the decision and substitute a new decision.

2.240 An internal review decision has effect from the day the reviewable decision took effect, and there is no limitation on the matters that may be considered in the review process. The Industry Secretary may also request the applicant to provide specified information, or specified kinds of information, about the application for internal review.

[Schedule 2, item 1, subsections 419-125(1) to (3) of the ITAA 1997]

2.241 If the Industry Secretary does not complete the internal review within a 60-day period that starts on the day the Industry Secretary receives the application for review, they are taken to have confirmed the reviewable decision (the deemed decision). If the Industry Secretary has requested the applicant to give specified information, or specified kinds of information, to the Industry Secretary about the application, this period also pauses while the Industry Secretary waits for that information. However, the deemed decision is not taken to be made if the Industry Secretary confirms, varies or substitutes the reviewable decision after conducting an internal review, after the period ends and the company has not made a review application to the Administrative Review Tribunal.

[Schedule 2, item 1, subsections 419-125(4) to (5) of the ITAA 1997]

2.242 If a company remains dissatisfied after internal review, they can apply to the Administrative Review Tribunal for a review of the Industry Secretary's internal review decision.

[Schedule 2, item 1, section 419-135 of the ITAA 1997]

2.243 As a decision that is reviewable by the Administrative Review Tribunal, obligations apply to the Industry Secretary under the ART Act. In particular, section 266 of the ART Act requires that any person whose interests are affected by the decision must be given notice of the decision and their entitlement to seek review. Additionally, sections 268 and 269 of the ART Act oblige the Industry Secretary to provide reasons for a reviewable decision on request.

2.244 The availability of administrative review does not affect the entitlement of companies to seek judicial review.

2.245 Separately, the Industry Secretary must give the Commissioner written notice of the outcome of an internal review. The applicant or the Commissioner may request, in writing, the Industry Secretary to give a statement of reasons for the internal review decision. The Industry Secretary must comply with the request.

[Schedule 2, item 1, subsections 419-130(2) to (3) of the ITAA 1997]

Integrity rules

2.246 The amendments include integrity rules that operate to ensure that claimants' CMPTI expenditure is actually incurred by the claimant in carrying on one or more of their registered CMPTI processing activities and are not increased as a result of dealings with related parties.

2.247 None of these rules limits the ability of the Commissioner to apply existing anti-avoidance rules, including the general anti-avoidance rule in Part IVA of the ITAA 1936.

Expenditure not at arm's length

2.248 First, Schedule 2 to the Bill includes an integrity rule in relation to non-arms length expenditure. This rule is similar to an existing integrity rule for the research and development tax incentive in section 355-400.

2.249 As a result of this rule, the amount of expenditure incurred in carrying on a registered CMTPI processing activity or part of such an activity will be treated as being equal to the market value of what is obtained by the expenditure if:

•

the expenditure is incurred to another entity;

•

either:

-

the other entity is an associate of the company (within the meaning of section 318 of the ITAA 1936), or

-

the two entities are otherwise not dealing with each other at arms' length; and

•

the expenditure is in excess of market value.

[Schedule 2, item 1, subsection 419-95 of the ITAA 1997]

2.250 This rule will prevent non-arms length arrangements being used to artificially inflate an entity's CMPTI expenditure.

Intra-group mark-ups

2.251 Second, Schedule 2 to the Bill includes a supplementary integrity rule on expenditure a company incurs to 'group entities'. In this context a group entity is an entity that is connected with the company (within the meaning of section 328-125 of the ITAA 1997), an affiliate of the company (within the meaning of section 328-130 of the ITAA 1997) or an entity of which the company is an affiliate.

2.252 This rule provides that expenditure 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.

[Schedule 2, item 1, subsection 419-100 of the ITAA 1997]

2.253 This rule ensures that groups of entities that are able to provide goods and services within a group below the general market price cannot inflate the price of those goods and services to artificially increase CMPTI expenditure. This rule is similar to an existing integrity rule for the research and development tax incentive in section 355-415 of the ITAA 1997.

Consequential amendments and guide material

2.254 Schedule 2 to the Bill also makes a range of consequential amendments to the ITAA 1936 and the ITAA 1997. These include amendments to the ITAA 1936 to ensure that the CMPTI tax offset is treated consistently with other tax benefits for the purposes of the general anti-avoidance rule in Part IVA of the ITAA 1936. It also includes amendments to the ITAA 1997 to ensure that the CMPTI tax offset is administered under the current framework for refundable tax offsets, insert guide material and to define concepts relating to the CMPTI tax offset in the Dictionary.

[Schedule 2, items 1 to 14; subsection 177A(1), paragraph 177C(1)(be), paragraph 177C(1)(i), paragraph 177C(2)(g), subsection 177C(3), paragraph 177C(3)(cc), subsection 177C(3)(j), paragraph 177CB(1)(g), paragraph 177F(1)(g) and paragraph 177F(3)(g) of the ITAA 1936, and section 13-1, table item 27 in section 67-23, section 419-1 and subsection 995-1(1) of the ITAA 1997]

Commencement, application, and transitional provisions

2.255 Schedule 2 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives Royal Assent.

2.256 The amendments apply to income years starting on or after 1 July 2027 and ending before 1 July 2040.

[Schedule 2, item 1, paragraph 419-5(1)(b) of the ITAA 1997]