Tax incentives fuelling Australia's clean energy future

Recent tax initiatives are driving momentum in Australia’s renewable energy sector, with a raft of measures being introduced to help operators, developers and investors maximise tax efficiencies across existing and future clean energy projects.

The Future Made in Australia initiative, announced as part of the 2024–25 federal Budget, encourages investment in renewable hydrogen, green metals, low-carbon fuels, critical minerals and clean energy manufacturing. Central to this initiative are two tax measures: the Hydrogen Production Tax Incentive and the Critical Minerals Production Tax Incentive. Both incentives were introduced in the Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 passed in February 2025.

Another development is the proposed extension of the Clean Building Managed Investment Trust withholding tax concession to include data centres and warehouses. While initially proposed to commence from 1 July 2025, the 2025–26 federal Budget deferred the start date to the first 1 January, 1 April, 1 July or 1 October following Royal Assent of the relevant bill. At the time of writing, no draft legislation has been released.

Hydrogen Production Tax Incentive

The Hydrogen Production Tax Incentive (HPTI) is a refundable tax offset of $2 per kilogram of renewable hydrogen for eligible producers. It applies to income years commencing on or after 1 July 2027 but ending before 1 July 2040, subject to a maximum of 10 years. Jointly administered by the Australian Taxation Office (ATO) and the Clean Energy Regulator (CER), the incentive targets medium- to large-scale production of renewable hydrogen in Australia.

This program is separate from the Hydrogen Headstart Program, administered by the Australian Renewable Energy Agency (ARENA), which supports large-scale renewable hydrogen projects through competitive hydrogen production contracts. Companies eligible for both programs will see reduced payments from the Hydrogen Headstart Program to reflect any refundable tax offset received under the HPTI, ensuring the two schemes work in parallel without duplicating benefits.

To be eligible, a producer must be a constitutional corporation subject to Australian tax and hold a production profile that allows for the issuance of a production guarantee of origin (PGO) certificate for the hydrogen produced. They must also comply with community benefit principles set by the Treasurer, including commitments to local communities, skills development, job security and tax transparency.

An eligible producer may only claim the tax offset in an income year if the hydrogen is produced in Australia between 1 July 2027 and 30 June 2040. The hydrogen must be produced within the facility’s 10-year offset period and at a single site in Australia with a production capacity equivalent to at least a 10 MW electrolyser. A registered PGO certificate is also required for each kilogram of hydrogen claimed, verifying that emissions intensity does not exceed 0.6 kilograms of carbon dioxide per kilogram of hydrogen, and that grid electricity, if used, meets grid matching requirements. The certificate must not be subject to correction by the CER.

Critical Minerals Production Tax Incentive

The Critical Minerals Production Tax Incentive (CMPTI) provides a refundable tax offset equal to 10% of eligible expenditure for income years starting on or after 1 July 2027 and ending before 1 July 2040. This limited period applies regardless of how long a specific processing activity has been registered. There are currently 31 critical minerals eligible for the offset.

The Industry Secretary is responsible for registering eligible processing activities, while the ATO administers the offset, which is self-assessed by eligible producers in their tax returns. To qualify, a producer must carry on a registered processing activity, be a constitutional corporation subject to tax in Australia and comply with community benefit principles.

Reduced withholding tax rate for Clean Building Managed Investment Trusts

For income years commencing on or after 1 July 2012, a reduced 10% withholding tax rate applies to fund payments by Clean Building Managed Investment Trusts (MITs) to foreign investors from information exchange countries. To qualify, a building must be a commercial office, hotel or shopping centre with construction commencing on or after 1 July 2012. It must also meet and maintain either a 5 Star Green Star rating from the Green Building Council of Australia or a 5.5-star energy rating from the National Australian Built Environment Rating System.

The 2023–24 federal Budget proposed expanding the definition of clean buildings to include data centres and warehouses from 1 July 2025. However, this date has since been deferred to 1 January, 1 April, 1 July or 1 October following Royal Assent of the relevant legislation.

Investors, developers and operators across the clean energy sector are encouraged to obtain structuring advice early to ensure eligibility and to minimise the risk of losing access to the available tax incentives.

Image credit: iStock.comVectorMine