Australia

Introduction

 

About Australia

Australia is the 19th largest economy in the world and is one of the largest mixed market economies in the world. A strong rule of law, a transparent and structured political system and an openness to foreign competition within multiple industries have established Australia as one of the most attractive destinations for foreign investment. This is further compounded by a strong domestic market as well as a skilled labour force. In terms of per capita gross domestic product, Australia ranks 11th in the world, accordign to the Internaitonal Monetary Fund's GDP figures.

The mining industry in Australia has been on an upward trend over the past decade. Australia is also the world's largest exporter of coal. Currently, Australian mining companies are essential to supporting China's growing economy. Strong investment from China has tightened Sino-Australian relations, making China Australia's largest trading partner. 

Additionally, the four banks dominating Australia's financial scene are amongst Global Finance magazine's World's 50 Safest Banks, and are supported by efficient regulatory frameworks and an established financial system; collectively they reinforce Australia's status as an attractive investment destination.

 

Australia Market Profile Infographic_small

What solutions are available in Australia?

Solution Description
Interest Optimisation Maximise your interest yield from for your balances held with the bank.
Notional Pooling Cash balances in different accounts are notionally offset to derive the net balance, which is then used to calculate interest.
Sweeping/ Zero Balance Account (ZBA) ZBA are checking accounts with zero balances where funds are physically swept to eliminate excess balances and maintain greater control over disbursements.
In-house Banks (IHB) In-house banks provide corporate treasurers with another method of centralising and consolidating their business.
Intercompany loans Similar to bank loans, intercompany loans refer to lending between entities within the same group.

Corporate Treasury in Australia

Australia is one of the largest mixed market economies in the world. Here, we highlight some of the key benefits the country offers to treasury and cash management.

 

Financial Market Development

  • The World Economic Forum ranks Australia sixth in the world for financial market development in The Global Competitiveness Report 2017-2018.
  • It ranks Australia fourth in the world for the soundness of its banks, commenting that it has a stable and well-regulated banking sector, and fourth in the world for the strength of legal rights in the country.
  • Australia has a highly skilled English-speaking workforce, excellent business infrastructure, a stable political system and a sound legal environment.
  • There are no general restrictions on moving money in and out of Australia.

 

Sophistication of Banking Systems

  • There are 36 domestic banks in Australia, with the sector dominated by four large banks: Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac. There are also seven foreign subsidiary banks and more than 40 branches of foreign banks. In addition, there are more than 50 credit unions and building societies.
  • Australia’s foreign exchange market has an average daily turnover of USD121 billion, accounting for 1.9% of global turnover (Bank for International Settlements triennial global survey 2016).
  • Australia has an established debt market. Government securities, semi-government securities, corporate bonds and kangaroo bonds – Australian dollar-denominated bonds issued by non-resident companies – are all available. There is more than AUD1 trillion of outstanding corporate bonds.

 

Regulatory Bodies

  • The banking industry is regulated by the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. The Reserve Bank of Australia is the central bank.

 

Tax

  • The corporate income tax rate is 30%. For companies with aggregated turnover threshold of less than AUD50 million and no more than 80% of their assessable income as base rate entity passive income (from 2018/2019 to 2023/2024), the corporate tax rate will be reduced to 27.5%. This reduced corporate tax for qualifying companies (subject to meeting certain conditions and possible new laws that may be enacted subsequently) will continue to be reduced to 27% in 2024/2025, 26% in 2025/2026 and 25% in 2026/2027.
  • Resident companies are taxed on worldwide income. Non-resident companies are generally taxed on Australian-sourced income.
  • The branch of foreign company’s profits are taxed at the same rate as resident company’s profits. There is no branch profit remittance tax on the remittance of profits to the head office by the branch of a foreign company.
  • The standard rate for Goods and Services Tax (GST) is 10% with certain goods and services being zero-rated whilst others are exempted.
  • Capital gains are generally assessed with ordinary income and subject to corporate income tax.
  • Interest expenses that are used for business purposes are generally tax deductible. However, the deductibility of the interest is restricted when the company’s allowable debt level exceeds the prescribed amount.
  • Withholding tax (WHT) of 30% is charged on dividends and 10% is charged on interest for non-resident companies where no treaties are in place. Rates range from 0% to 30% for dividends and interest where a tax treaty is in place and the non-resident can provide the Certificate of Residence.
  • All states and territories impose a stamp duty on a wide variety of transactions at different rates.
  • Australia has tax treaties with more than 40 countries and territories.
  • The Australian government has enacted a range of measures to address tax avoidance in Australia by multinational companies with global revenue of more than AUD1 billion.
  • Australia is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.

 

Benefits for Regional Treasury Centres

  • Australia has strong economic and cultural ties with the fast-growing Asia-Pacific region, as well as overlapping trading hours.
  • Its two financial centres are Sydney and Melbourne.
  • It has a strong legal system, highly skilled English-speaking workforce and excellent business infrastructure.
  • Australia is developing as a renminbi settlement hub for the Asia-Pacific region.
  • Australia has a liquid foreign-exchange market and the necessary clearing and settlement systems to facilitate smooth financial transactions.
  • It recently launched the New Payments Platform offering near real-time fund transfers.
  • It is a member of the Asian Payment Network, a common payment settlement platform within the Asia-Pacific region.
  • Domestic and cross-border notional pooling and cash concentration are permitted for resident and non-resident companies.

 

Banking

 

Banking System

  • There are 36 Australian-owned banks, seven foreign-subsidiary banks and 44 branches of foreign banks. In addition, there are three building societies and 48 credit unions.
  • The banking sector is dominated by four Australian-owned banks: Commonwealth Bank, Australia and New Zealand Banking Group, Westpac and National Australia Bank. Together they make up approximately 75% of total assets of authorized deposit-taking institutions.
  • A free-trade agreement with China (ChAFTA) has provided various concessions to Australian banks to operate in China, as well as making Sydney an RMB settlement hub. The Bank of China in Sydney is the official RMB clearing bank in Australia.

 

Bank Accounts

  • Residents may hold foreign-exchange and domestic currency accounts domestically and overseas, whereby domestic currency accounts are freely convertible to foreign exchange through a licensed dealer.
  • Non-residents may hold foreign and domestic currency accounts, whereby domestic currency accounts are freely convertible to foreign currency through a licensed dealer.
  • Interest is available to resident and non-resident bank accounts.

 

Legal and Regulatory

  • The Australian Prudential Regulatory Authority (APRA) oversees the banking sector.
  • The Australian Securities & Investment Commission (ASIC) regulates consumer credit activity.
  • A company is resident if it is incorporated in Australia or it carries out its head office activities and control in Australia or the voting power is held by shareholders who are resident in Australia.
  • If a company continues business in Australia but is not physically present there, it may be registered as a foreign corporation with the Australian Securities and Investments Commission.
  • Australia has anti-money laundering and counterterrorism-financing legislation in place.
  • Australia is a member of the Financial Action Task Force (FATF) and has set up a financial intelligence unit, AUSTRAC, which is a member of the Egmont Group.

 

Payments

 

Payment Systems

RITS

(Reserve Bank Information and Transfer System)

Australia's National Real-time Gross Settlement (RTGS) system

  • Operated by the Reserve Bank of Australia (RBA).
  • Final settlement is done through exchange settlement accounts (ESAs) at the RBA.
  • Supports the settlement of other interbank transactions on a net deferred basis.
  • 87 licensed bank participants (required to hold ESAs with the RBA) and 78 non-banking participants.
  • Processes participants' transactions in the securities settlement systems, Austraclear and the Australian Stock Exchange's Clearing House Electronic Sub-register System (CHESS).
  • Final settlement done for participants' net balances from other clearing houses.
  • Settles interbank transactions in real time and with immediate finality.
  • Also includes the Fast Settlement Service (FSS) used in conjunction with the New Payments Platform.

Australian Payments Network (AusPayNet)

 

(formerly Australian Payments Clearing Association (APCA))

 

 

Payment systems regulator

  • Industry-led organisation that administers best-practice methods.
  • 120 participants including RBA.
  • Supervises and co-ordinates the main clearing systems, listed below:

NPP

(New Payments Platform)

 

Low value payment system

  • Launched in 2018.
  • Provides basic infrastructure for businesses, consumers and government departments to make and receive fast, efficient payments.
  • Payments cleared and settled in near real time, even when payer and recipient have accounts with different banks, using email address or phone number (the PayID addressing system) instead of account number or BSB.
  • Developed collaboratively by NPP Australia Ltd. and 13 financial institutions. Allows other financial institutions to connect to the Platform via the initial participants.
  • The first product developed and delivered via the NPP is called Osko.
  • Over 70 institutions currently offer PayID and Osko through the NPP.

HVCS

(High Value Clearing System)

Electronic high value exchange and multilateral net settlement system

  • Processes high value and urgent interbank transfers (no value threshold), mainly for the AUD portion of foreign exchange transactions.
  • Payments exchanged in real time and with immediate effect utilizing the SWIFT Payment Delivery System (PDS) and then settled individually using RITS.
  • To settle transactions, participating financial institutions must hold an ESA within RITS.
  • 49 participants, including the RBA.

APCS

(Australian Paper Clearing System)

Interbank cheque and paper-based exchange and settlement system

  • Processes AUD-denominated cheques and MICR-encoded paper-based payments (no value threshold).
  • Is a deferred net settlement system.
  • Transactions settled on a next-day basis and same day through BECS.
  • Final settlement done through Australia's low value clearing systems across participants' ESAs held at the RBA.
  • 95 participants, including the RBA.

BECS

(Bulk Electronic Clearing System)

Interbank bulk electronic exchange and settlement system

  • Processes low value electronic transactions (including regular direct debits and direct credits) for consumers and businesses. Maximum value AUD100 million.
  • Is a deferred net settlement system, also known as ‘Direct Entry’.
  • Commonly used for regular salary and social security payments.
  • Transactions settled on a next-day basis and same day through BECS.
  • Final settlement done through Australia's low value clearing systems across participants' ESAs held at the RBA.
  • 71 participants, including the RBA.

 

Payment Instruments

 

Credit Transfers

  • Paper-based or automated, although they are mostly automated.
  • High-value and urgent electronic credit transfers cleared and settled through HVCS in real time.
  • Low-value, non-urgent and bulk electronic credit transfers settled through BECS same day.
  • Used for payroll, supplier and third-party payments.
  • Paper-based credit transfers processed through APCS.

 

Direct Debits (auto debits)

  • Used for low value, recurring payments such as utility and insurance bills.
  • Arranged via a Direct Debit Request (DDR).
  • Processed through BECS same day and coordinated by AusPayNet.

 

Card Payments

  • Credit and debit card payments are the most widely-used form of electronic payment in Australia.
  • Recent surveys show that consumers are using cards for large as well as small transactions, largely due to the growth in contactless (tap-and-go) payment systems.
  • The main card brands are Visa and MasterCard, in addition to American Express, JCB and Diners Club, all of which are Europay, MasterCard and Visa (EMV)-compliant.
  • The main debit card payment system is EFTPOS, owned by EFTPOS Payments Australia Ltd., which has a national network made up of seven proprietary networks.
  • Visa and MasterCard debit cards can only be used for internet and telephone transactions, as well as overseas payments.

 

Online Payments

      • Allows consumers to pay for goods and services or transfer money via payment systems that link to a credit card or bank account.
      • Common online payment options in Australia include BPay, PayPal and POLi.
      • Account-linked payments and transfers, as with BPay, can be processed through online, mobile and phone banking systems.
      • Similar to online payments, the use of mobile wallets has significantly increased. ANZ Bank, one of the ‘big four’ Australian banks, saw a 156% increase in mobile payments in the first half of 2018 compared to the first half of 2017, and 62% of customers used mobile wallets to pay for retail purchases in 2017.
      • Local banks have teamed up with global mobile wallets - such as ANZ with Apple Pay and Westpac with Google Pay - while retailers such as Myers and Coles have launched digital wallets that connect reward and card accounts on a single app. Mobile wallets can also be found on wearable fitness devices, such as FitBit Pay and Garmin Pay, or connected through F&B order apps like the popular Hey You.
      • ASIC has a regulatory sandbox framework applied to financial technology (fintech) companies.
      • The government has allocated funding to support and promote the development of the fintech industry, such as facilitating open banking and researching how to best utilize blockchain technology.

 

Digital Currencies

  • Australia has a thriving cryptocurrency market and the government has introduced regulations which require digital currency exchanges to register with Australian Transaction Reports and Analysis Centre (AUSTRAC), as a means of preventing anti-money laundering and counterterrorism activities.
  • Cryptocurrencies are legal tender in Australia. Taxation varies depending on the amount bought or sold, how it’s being used and whether any profits have been earned.

 

Cash, Cheques and Money Orders

  • The overall rise of cashless systems has caused both cash, and ATM, use to plummet. In less than ten years (from 2007-2016), according to the RBA’s Consumer Payment Methods Survey, cash payments dropped from 69% to 37% of all transactions. The RBA’s ongoing survey, releasing next in 2019, is expected to show the trend continuing.
  • Cheque use is also in decline (dropping, on average, by 20% annually) due to the increased use of electronic payments. However, cheques are often used for commercial payments and specific transactions such as property settlements.
  • Processed through the APCS, with final settlement through RITS. Funds are usually available within three days.
  • Australia Post offers the Western Union remittance service at its branches.
  •  

Demographics

Australia Market Profile Infographic

1 (Progressive) max rate for incomes over AUD180,000

 

Recent developments

 

Luxembourg Fintech Pact

The Australian Securities and Investments Commission (ASIC) has signed a Cooperation Agreement with the Luxembourg Commission de Surveillance du Secteur Financier. The agreement provides a framework for the two regulators to share information about fintech and regtech. Both countries are significant fund management centres and both are focused on innovation. The pact is ASIC’s 15th fintech cooperation agreement and the fourth one that involves information sharing. It recently signed agreements with China, Indonesia and Kenya.

Read more about the development here.

 

Smartphone ATM Withdrawals Launched

Customers of ANZ Bank can now use smartphones or smartwatches to withdraw money from its ATMs. The service has been launched at 2,400 of the bank’s ATMs for customers using Apple Pay, Samsung Pay, Google Pay, Gamin Pay and Fitbit Pay. The group said more than one million of its customers were currently using digital wallets that were linked to an ANZ card. ANZ customers made more than 57 million mobile payment transactions worth more than AUD1.83 billion between October 2017 and August 2018.

Read more about the development here

 

Australians Ditch Cash

A third of Australians now use a card for all of their transactions and the majority of people prefer cards to cash, a YouGov Galaxy survey has found. Four out of five people said they thought paying by card was both faster and more convenient than paying by cash, while a fifth of respondents said they had not visited a bank or an ATM in the past four weeks. The study also found that half of small and medium-sized businesses thought they would become cashless in the future.

Read more about the development here

 

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Australia and take advantage of our innovative solutions to empower your business. Click here to find out more.

 

 

Sources: IMF, Global Finance Magazine, World Economic Forum, PwC, Australian Prudential Regulation Authority, Bank for International Settlements, Deloitte

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Last updated on 23 Nov 2018