The U.S. Incentives Playbook: How Australian Businesses Can Turn Expansion Into Advantage

For many Australian companies, the United States looks deceptively simple, one country, one flag, one massive consumer market. 

However, the reality is far from that. Apart from culture and the use of words two other things are highly diverse as businesses move from US state to US state. The first is tax law, the second is incentives provided by governments.

America is not one market but rather a federation of federal rules, state tax systems, city-level economic development offices, local workforce programmes, utility incentives, property tax negotiations and industry-specific credits.

That complexity can often overwhelm newcomers. However, with the right planning, businesses can benefit.

The question for an Australian company should not simply be, “Where should we incorporate?” or “Which state has the lowest tax?” 

The better question is – where will our U.S. activities create the most value – jobs, investment, research, manufacturing, training, clean energy or exports – and which government wants that activity enough to support it?

America Does Not Hand Out Incentives Automatically

The United States has a deep incentives ecosystem, but it is rarely automatic. 

A business that signs a lease, hires staff and announces a location before speaking to the relevant economic development agencies may have already given away much of its negotiating leverage.

At the federal level, SelectUSA is a useful starting point for foreign investors. 

It is led by the U.S. Department of Commerce and is designed to facilitate job-creating business investment into the United States. 

It has helped facilitate more than US$400 billion in investment and supported more than 270,000 U.S. jobs, according to the Department of Commerce. 

It is important to note though that SelectUSA is a gateway, not a open cheque book. While it helps investors understand the market, access data and connect with federal, state and local stakeholders – it does not itself award most state or local incentives. 

This distinction matters. 

In the U.S., the most valuable incentive package for an expanding business is often not a single federal grant. 

It may be a carefully negotiated combination of state tax credits, local property tax abatements, workforce training support, infrastructure assistance, energy incentives and federal tax credits.

State Incentives: Where The Real Competition Begins

The U.S. states compete fiercely for investment, but they do so in different ways. 

Some states emphasize low headline tax rates. 

Others offer targeted credits for job creation, capital investment, research and development, advanced manufacturing, life sciences, clean energy or workforce training.

That means the “best” state is rarely the one with the lowest headline tax rate. 

It is the state where the company’s operating model, workforce needs, customer base, supply chain and tax profile align.

Let’s look at New York as an example.

Its Excelsior Jobs Program can provide fully refundable tax credits over a benefit period of up to 10 years, but only where businesses meet and maintain specified job and investment thresholds. 

The programme can cover credits linked to jobs, investment, research and development, real property and childcare-related expenditure. 

It is attractive, but it is not automatic. 

It is a performance-based programme with accountability built in. 

Georgia offers a different kind of advantage through Georgia Quick Start, which provides customised workforce training free of charge to qualified new, expanding and existing businesses. 

For labour-intensive or technical operations, that support can be more valuable than a headline tax credit because it directly reduces the cost and friction of building a workforce. 

California’s Employment Training Panel is another example. 

It provides funding to employers to assist with training that leads to long-term, well-paid jobs. 

Importantly, it is a funding agency, not a training provider, so companies must still design and manage their own training strategy. 

The lesson is simple – incentives follow facts. 

A software company, a sports-tech platform, a medical device business and a manufacturing group may all need different states, different agencies and different applications.

Do Not Confuse “Low Tax” With “No Tax”

Australian businesses often hear that Texas and Florida are “no tax” states. 

That is too simplistic.

Texas does not impose a traditional corporate income tax, but it does impose a franchise tax on taxable entities formed or organised in Texas or doing business there. 

For 2026 and 2027, the Texas Comptroller lists a no-tax-due threshold of US$2.65 million and franchise tax rates of 0.375% for retail or wholesale businesses and 0.75% for other businesses, subject to the applicable rules. 

Florida has no personal income tax, but that does not mean corporations operate free of state income tax. 

Florida’s corporate income/franchise tax rate is 5.5% for taxable years beginning on or after 1 January 2022. 

For an expanding Australian group, the state comparison should include corporate tax, franchise or gross receipts taxes, sales tax, payroll taxes, property tax, apportionment, local business taxes, employment law, labour costs, logistics, customer proximity and available incentives. 

A low-tax state can still be expensive if it is the wrong commercial fit.

Zones Can Help – But Know What Kind Of Zone You Are In

Location-based incentives are common in the United States, but the terminology can be misleading. “Enterprise zone,” “opportunity zone,” “empowerment zone,” “development zone” and “distressed area” do not mean the same thing.

Opportunity Zones, for example, are frequently misunderstood. 

They are primarily investor-side tax incentives. 

A taxpayer may be able to defer eligible gains by investing through a Qualified Opportunity Fund, but the benefit does not operate like a direct grant to a business merely because it opens an office in a designated area. 

Under current legacy rules, eligible gains invested into a Qualified Opportunity Fund may be deferred until an inclusion event or 31 December 2026, whichever is earlier. 

The programme is also evolving. 

IRS guidance states that the 2025 federal legislation commonly referred to as the One Big Beautiful Bill Act makes the Qualified Opportunity Zone incentive permanent, with the first post-enactment round of new QOZ designations taking effect on 1 January 2027 and new rounds following every 10 years. 

It also introduced additional tax benefits for certain rural-area Opportunity Zone investments. 

For practical purposes, this means a business should not simply ask, “Are we in a zone?” 

It should ask: who receives the benefit, what investment is required, when must the investment be made, what compliance applies, and does the benefit fit our capital structure?

The R&D Tax Credit – Powerful, But Not A Blank Cheque

For innovative Australian companies entering the U.S., the federal R&D tax credit can be one of the most valuable incentives available. 

But it is often oversold.

The U.S. R&D credit is not a reimbursement of research spending. 

It is a tax credit calculated by reference to qualifying research activities and qualifying research expenses. 

The activity must satisfy the section 41 requirements, including the four-part framework: the expenditure must relate to section 174-type research, the work must seek technological information, the information must be intended for use in developing a new or improved business component, and substantially all of the activity must involve a process of experimentation for a qualified purpose. 

That does not mean the company must invent something never seen before. 

The IRS guidance confirms there is no separate requirement that the work exceed or expand the common knowledge of skilled professionals. 

In practice, the focus is on whether the company faced technical uncertainty, identified alternatives and evaluated those alternatives through a genuine process of experimentation. 

Qualifying expenses are narrower than many businesses expect. 

They generally include eligible wages, supplies used in qualified research, certain computer-use costs and 65% of eligible contract research expenses. 

A broad claim for “cloud computing” or “software development” costs should be reviewed carefully rather than assumed to qualify automatically. 

For Australian groups, one rule is especially important – foreign research does not qualify for the U.S. federal R&D credit. Research conducted outside the United States, Puerto Rico or U.S. possessions is excluded, even if it is performed for a U.S. taxpayer or by American researchers. 

That means work performed by engineers in Sydney, Melbourne or Brisbane generally cannot be converted into a U.S. federal R&D credit merely because the intellectual property is later used by a U.S. subsidiary. 

The structure of contracts, ownership of IP, location of personnel, funding arrangements and technical records all matter.

The Payroll Tax Opportunity For Younger Companies

For early-stage businesses, the R&D credit may be valuable even before the company has meaningful income tax liability.

A qualified small business may elect to use up to US$500,000 of its research credit against payroll tax for tax years beginning after 31 December 2022. 

The IRS states that the payroll tax credit is first used against the employer share of Social Security tax, with remaining credit then reducing the employer share of Medicare tax for the quarter. 

The eligibility rules are specific. 

A qualified small business generally must have gross receipts of less than US$5 million for the tax year and no gross receipts for any tax year before the five-tax-year period ending with the credit year. 

The election is also subject to timing and repeat-use limits. 

For a young Australian technology company launching in the U.S., that can be meaningful cash-flow support. 

But the company needs the right records from day one: project descriptions, technical uncertainties, employee time allocation, contracts, invoices and evidence of experimentation.

Do Not Confuse The R&D Credit With R&E Expensing

Another common trap is mixing up the R&D credit with the deduction rules for research and experimental expenditure.

Following recent U.S. tax changes, taxpayers may generally deduct domestic research or experimental expenditure paid or incurred in taxable years beginning after 31 December 2024, or elect to capitalise and amortise those domestic costs over at least 60 months. 

Foreign research or experimental expenditure cannot be currently deducted and is generally amortised over 15 years. 

That distinction is important for cross-border planning. 

A U.S. subsidiary carrying out domestic research may have both credit and deduction considerations. 

An Australian parent carrying out research offshore may face a different U.S. outcome. 

For groups with shared development teams, intercompany agreements and transfer pricing policies should be aligned with the intended tax position.

Clean Energy Incentives – Attractive, But Increasingly Technical

Sustainability incentives remain significant, but the rules are now highly technical.

The U.S. Clean Electricity Investment Credit has a base credit amount of 6% of qualified investment. 

That amount can increase up to 30% where prevailing wage and registered apprenticeship requirements are satisfied. 

Additional 10-percentage-point bonuses may be available for projects meeting certain domestic content requirements or located in an energy community. 

The credit may also be eligible for direct payment or transferability in certain circumstances, although taxpayers cannot claim both the investment credit and production credit for the same facility. 

This is a major planning area for businesses investing in solar, storage, clean electricity, manufacturing facilities or energy-intensive operations. 

But the “30% credit” should not be described as automatic. 

It depends on the project, the property, labour compliance, timing, location, domestic content, tax ownership and documentation.

The timing rules are also changing. 

IRS Notice 2025-42 explains that, under the 2025 legislation, section 45Y and section 48E credits terminate for applicable wind and solar facilities placed in service after 31 December 2027 where construction begins after 4 July 2026. 

For businesses, the message is clear – clean energy tax credits can improve project economics, but they should be modelled before committing capital. 

A rooftop solar project, a battery installation, a manufacturing upgrade and a major renewable generation project may all sit under different rules.

The Real Strategy – Design The U.S. Footprint Before Asking For Incentives

The most successful incentive strategies are built before the U.S. expansion is announced. 

Once a company has chosen a state, signed a lease, hired staff and committed publicly, the economic development agency may have little reason to offer support.

A strong U.S. incentives review should ask:

• What activities will be performed in the U.S.? 

• How many jobs will be created, and at what wage level? 

• What capital expenditure will be made? 

• Will the company conduct U.S.-based R&D? 

• Will it invest in training, manufacturing, clean energy, logistics or distressed-area development? 

• Does the company need incentives as cash grants, tax credits, abatements, training support or infrastructure assistance? 

• Are the incentives discretionary, automatic, refundable, transferable or subject to clawback? 

• How will the structure interact with Australian tax, U.S. federal tax, state tax and transfer pricing? 

The businesses that win do not treat incentives as an afterthought. 

They treat them as part of site selection, entity structuring, workforce planning and capital allocation.

Final Word – America Rewards Specificity

The U.S. incentive system is not simple but it can be worked through.

Australian businesses should avoid three mistakes:

1. assuming incentives are automatic;

2. chasing headline tax rates without modelling the full operating cost; and 

3. trying to claim credits after the commercial facts have already been locked in.

The better approach is to enter the U.S. with a clear operating story, where the company will invest, who it will hire, what it will build, what technology it will develop and how its presence will benefit the local economy.

In America, governments do not usually subsidise vague ambition. 

They support specific activity. 

The companies that understand that early can turn U.S. expansion from a cost centre into a strategic advantage.

CHECKLIST: Australia – US Market Entry Checklist

Following the announcements in the 2026 Australian budget provided by Treasurer Jim Chalmers on 12 May 2026, Matthew Marcarian, Principal of our Sydney office, examines how the 30% minimum tax on capital gains affects some taxpayers with existing negative gearing arrangements. 

The Government has announced that taxpayers with residential properties acquired before 7.30pm on 12 May 2026 will be able to continue to negatively gear those properties.¹

However, this case study shows that some taxpayers with existing negative gearing arrangements will be affected by the Bill, because of the proposal of 30% minimum tax on capital gains.

Policy

Paragraph 1.172 of the Explanatory Memorandum to the Bill states that a 30% minimum floor CGT prevents taxpayers from “deferring the realization of capital gains to years where their marginal tax rates are low” and “ensures their gains are subject to a tax rate closer to the rate they faced during their working life and is commensurate with the tax rate paid by most workers.”

The Government has not made the case that its concerns about why taxpayers sell assets, warrant such a drastic change to our tax system. Nor has the case been made that capital gains should always be taxed at a floor 30% rate, when a taxpayer is not in those circumstances.

My experience from over 20 years of public practice is that most taxpayers who realize capital gains in low-income years do so because they need to supplement their cash flow or free-up resources to make new purchases or to fund one-off expenditures.

Often taxpayers have low-income years, because of changes in life’s circumstances, not because they have artificially planned to reduce their assessable income.

Implementing a blanket floor 30% CGT across the tax system (via the method statement in proposed Section 119-10(2)), rather than assessing taxpayers in accordance with their marginal tax rates is inequitable. The Government should not proceed with this measure.

The 30% floor tax works against the core feature of the Australian tax system, that people should be assessed in accordance with their marginal tax rates.

The case study below demonstrates how the benefit of a rental property loss on an existing residential property (said to be preserved under the Budget announcements) is almost entirely lost because of the 30% Floor Tax.

¹ See Budget 2026-2027 Tax Explainer – Negative Gearing and Capital Gains Tax (page 4)

Analysis: “Sarah’s Case”

Sarah has recently taken a break from full-time employment to start a family. She has salary income of $20,000 for the year and has realized a net capital gain on shares of $50,000, representing her savings over many years of work.

We model two ‘scenarios’ in the Calculation Table below. 

Scenario A where Sarah has no rental loss and in Scenario B Sarah has a rental loss of $15,000 on a residential property she acquired before 7.30pm on 12 May 2026.

Applying the 7-step formula in the proposed Section 119-10(2) to determine the “minimum tax gap amount” reveals a clear structural problem.

In Scenario A, where Sarah has no rental loss, she would pay $13,188 in tax (including Medicare) but if the Bill is passed Sarah would be required to pay $16,688 in tax on $70,000 of taxable income. This is an additional $3,500 in tax, merely because Sarah realized a capital gain.

In addition, to demonstrate how the benefits of Sarah’s residential rental loss would mostly be lost, we compare Scenario A with Scenario B.

In Scenario B, Sarah pays $16,100 in tax (including Medicare), even though her rental loss ($15,000) reduces her taxable income down from $70,000 to $55,000. The tax saving to Sarah for having the rental loss in this case is only $588.

Calculation Table

Legislative Calculation Steps	Scenario A: WITHOUT Property Loss (Taxable Inc: $70k)	Scenario B: WITH Property Loss (Taxable Inc: $55k)
Step 1: Capital Gain × 30%	$50,000 × 30% = $15,000	$50,000 × 30% = $15,000
Step 2: Basic Income Tax Liability	Tax on $70,000 = $11,788	Tax on $55,000 = $7,288
Step 3: Tax if Taxable Income reduced by CG	Tax on ($70k – $50k) = Tax on $20k = $288	Tax on ($55k – $50k) = Tax on $5k = $0
Step 4: Subtract Step 3 from Step 2	$11,788 – $288 = $11,500	$7,288 – $0 = $7,288
Step 5: Subtract Step 4 from Step 1	$15,000 – $11,500 = $3,500	$15,000 – $7,288 = $7,712
Step 6 & 7: Minimum Tax Gap Amount	$3,500	$7,712
Add: Medicare Levy (2% of Taxable Income)*	2% of $70,000 = $1,400	2% of $55,000 = $1,100
Total Out-of-Pocket Tax Bill (Step 2 + Step 7 + Levy)	$11,788 + $3,500 + $1,400 = $16,688	$7,288 + $7,712 + $1,100 = $16,100
Effective Cash Value of the $15,000 Loss: $16,688 – $16,100 = $588 total net savings (vs. $4,800 under standard progressive rates. 87.8% of the deduction is lost).

What If Sarah Had A Higher Salary During The Year?

Curiously, if Sarah instead had a salary of $80,000, she would receive the full benefit of her rental loss.

Her tax liability (including Medicare) would reduce from $32,388 to $27,588. Sarah’s rental loss of $15,000 would save her $4,800 in tax and there would be ‘no minimum tax gap amount’ on her capital gain.

How could it be equitable that Sarah loses most of the benefit of the deduction for her rental loss when she has salary of $20,000, but receives the full benefit of her rental loss if she earns a salary of $80,000?

Core Technical Anomalies And Removal Of Deductions

There are two main issues highlighted by this case study.

Arbitrary Removal Of Low Marginal Tax Rates

First, in Scenario A, Sarah loses the benefit of her low marginal rates simply because she makes a capital gain.

It is highly inequitable to require taxpayers like Sarah, who have low-income because of changing life circumstances, to pay more tax on a capital gain than their marginal tax rate would require, simply because they realize a capital gain in a year of low income.

In this example Sarah chose to work part-time to concentrate on starting a family, but there may be many reasons why a person has low income. They may be starting out in life, starting a business or looking after young children. They may have been retrenched from their job, maybe pursuing charitable work, or they may be in retirement.

Why should a person have to pay an additional tax, simply because they have realized a capital gain to free up funds to help with changing life circumstances?

Claw Back Of Negative Gearing Benefits For Existing Properties

Second, in Scenario B, there is negative gearing claw back. Sarah’s negative gearing benefits have been almost entirely lost – even though the Government announced that taxpayers would be able to continue to negatively gear residential properties acquired before 7.30pm on 12 May 2026.

In an arbitrary result, had Sarah’s salary income been higher, her negative gearing benefits would have been preserved. If she had a salary of $80,000 rather than only $20,000, she would have received the full benefit for tax deductions on her existing residential property.

The Bill does not preserve existing negative gearing outcomes for all taxpayers and could also result in the loss of negative gearing benefits for new residential properties.

In fact, the benefit of deductions for taxpayers on lower marginal rates can be lost or reduced by the presence of a capital gain, but not if they are claimed against other types of investment income – such as trading gains, dividends, interest and rents.

Matthew has written a submission to the Senate Standing Committees on Economics posing the following questions: 

• Question 1: Why does the floor tax formula in proposed Section 119-10(2) fail to prevent the benefit of deductions for existing residential rental property from being denied when the Government stated that negative gearing benefits would be preserved for properties acquired prior to 7.30pm on 12 May 2026.
  
• Question 2: Why does the floor tax formula also apparently result in a similar outcome for some taxpayers with net rental losses on new residential properties acquired after 7.30pm on 12 May 2026, when it is the Government’s policy is that the benefit of deductions for new residential properties should be permitted?
  
• Question 3: Why does the floor tax formula in proposed Section 119-10(2) also prevent low-rate taxpayers receiving the full benefit of other tax deductions (such as work-related expenses, donations and concessional contributions) in a year when the taxpayer also makes a capital gain?
  
• Question 4: The removal of the CGT Discount is a significant measure. Why has the Government gone further to deny taxpayers the benefit of lower marginal rates simply because they have made a capital gain?

Matthew recommends the proposed 30% floor tax policy should be discontinued because it claws back negative gearing benefits in situations where it is Government policy to permit negative gearing.

The Effect Of The 30% Capital Gains Tax Minimum Floor Tax On Australian Expats And Non-Residents

Following the announcements in the 2026 Australian budget provided by Treasurer Jim Chalmers on 12 May 2026, Matthew Marcarian, Principal of our Sydney office, examines the distortive consequences of the proposed 30% Capital Gains Tax (CGT) minimum floor tax on Australian expats and other non-residents in this article.

The benefit of negative gearing was supposed to be preserved for residential properties acquired prior to 7.30pm on 12 May 2026 (Budget Night) and was to be permitted for new residential properties acquired after Budget Night. 

However, because of the proposed Floor Tax on capital gains – negative gearing benefits are not necessarily preserved. 

Unfortunately – this is true for Australian tax residents in various situations and is also true for Australian expats alike (non-residents).

The Case Study below illustrates the problem in the circumstances of an Australian expat “Liam” who decides to sell his Australian rental property. 

It demonstrates that the floor tax formula removes (effectively retrospectively) the value of accumulated prior-year rental tax losses. Current policy settings do not allow tax losses to be kept in abeyance. They must be applied to taxable income.

The Policy Flaw: Removing The Benefit Of Prior-Year Tax Losses

For individuals working overseas, their assessable Australian income is typically restricted strictly to Australian-sourced rental income. 

Under long-standing Australian tax principles, legitimate out-of-pocket investment losses incurred while property gearing can be carried forward indefinitely to offset future assessable income, including capital gains. 

The 30% minimum floor tax formula completely changes this.

While prior-year revenue tax losses are technically “used” on paper to reduce Liam’s nominal taxable income, the 7-step legislative formula in the proposed Section 119-10(2) forces a top-up calculation that anchors Liam’s final bill to a flat 30% of the gross capital gain. The 30% floor CGT claws back the tax savings otherwise available and removes the tax benefit of the tax losses. 

The benefit of negative gearing on residential property acquired prior to 7.30pm on Budget night was supposed to be preserved. 

Analysis: “Liam’s Case”

Liam is an Australian expat working overseas. Over 4 years of non-residency, he has accumulated $80,000 in carried-forward Australian tax losses on his investment apartment. 

The tax losses arose because his rental expenses, including bank interest, exceeded his rental income by $20,000 each year. Liam sells his property for a capital gain of $250,000 in preparation for buying a home upon returning to Australia. As a non-resident, he has now other Australian assessable income.

Liam’s Parameters: Carried-Forward Rental Losses: $80,000 | Net Capital Gain: $250,000. Actual Taxable Income (Post-Loss): $170,000. 

Scenario A shows the result if Liam had no accumulated tax losses. 

Scenario B shows the result with losses applied.  

Legislative Calculation Steps	Scenario A: WITHOUT Accumulated Loss Baseline ($250k Taxable)	Scenario B: WITH $80,000 Accumulated Loss Applied ($170k Taxable)
Step 1: Capital Gain × 30%	$250,000 × 30% = $75,000	$250,000 × 30% = $75,000
Step 2: Basic Income Tax Liability	Foreign Resident Tax on $250k = $87,850	Foreign Resident Tax on $170k = $53,450
Step 3: Tax if Taxable Income reduced by CG	Tax on ($250k – $250k) = Tax on $0 = $0	Tax on ($170k – $250k) = Tax on $0 = $0
Step 4: Subtract Step 3 from Step 2	$87,850 – $0 = $87,850	$53,450 – $0 = $53,450
Step 5: Subtract Step 4 from Step 1	$75,000 – $87,850 = -$12,850	$75,000 – $53,450 = $21,550
Step 6 & 7: Minimum Tax Gap Amount	$0 (Result was below nil)	$21,550
Add: Medicare Levy (Foreign Resident Rate)*	$0 (Exempt as Non-Resident)	$0 (Exempt as Non-Resident)
Total Out-of-Pocket Tax Bill (Step 2 + Step 7)	$87,850	$75,000 (Floor overrides basic tax calculation)
Effective Cash Value of the $80,000 Loss: $87,850 – $75,000 = $12,850 total net savings (vs. $34,400 standard progressive savings. 62.6% of the tax loss value is lost).

Liam’s simulation is based strictly on the legislated 2026 Stage 3 foreign resident income tax brackets (30% from $0 to $135,000; 37% from $135,001 to $190,000; 45% above $190,000). Foreign residents are legally exempt from the 2.0% Medicare Levy and the Medicare Levy Surcharge.

Core Technical Anomalies For Expats And Non-Residents

• Confiscation Of Losses – Carried-forward rental losses are actual deficits paid by Liam to hold Australian property. Had he remained living in Australia, he would have had the benefit of the loss against his employment or other income. The new rules wipe out the tax deduction of these carry-forward losses simply because they are applied in a year with a capital gain, introducing an asymmetrical penalty on expat property owners. 
  
  Had Liam waited to return to Australia, he could have applied those losses to salary income if he were able to find employment on his return to Australia.  The tax outcome will likely influence the ‘right time’ for Liam to sell his apartment. It is necessary for Liam to earn enough other income (for example Australian employment income), before he can sell his apartment, otherwise he risks losing the benefit of his tax losses.
  
• The Return-To-Australia Barrier – Many expats retain single investment properties to preserve a financial link to their home market, intending to use the sale proceeds to buy a main residence upon return. By wasting tax losses, this legislation actively complicates the repatriation process for expat Australians looking to return home.
  
• Casualties Of Law – Australian expats have for many years been subject to harsh tax outcomes because Governments of the day were seeking to impose taxes on foreigners—but could not pass income tax laws targeting foreigners. As a result, policy responses which targeted at foreigners were legislated to apply to ‘non-residents.’

It is my view that Australian expatriates have been unfairly treated – this continues a long trend. First with the removal of the 50% CGT Discount (2012), second with the removal of the CGT Main Residence Exemption for non-residents (2020) and now again with new proposals in the Bill. 

Expats will risk significant loss of value for their existing tax losses, and the Government has already announced that non-residents, which include Australian expats, will not be given the benefit of indexation