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.
What solutions are available in Australia?
|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.
- 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.
- 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.
- 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.
- 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.
(Reserve Bank Information and Transfer System)
Australia's National Real-time Gross Settlement (RTGS) system
Australian Payments Network (AusPayNet)
(formerly Australian Payments Clearing Association (APCA))
Payment systems regulator
(New Payments Platform)
Low value payment system
(High Value Clearing System)
Electronic high value exchange and multilateral net settlement system
(Australian Paper Clearing System)
Interbank cheque and paper-based exchange and settlement system
(Bulk Electronic Clearing System)
Interbank bulk electronic exchange and settlement system
- 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.
- 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.
- 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.
- 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.
1 (Progressive) max rate for incomes over AUD180,000
67% to Use Real-Time Payments by 2023
Two-thirds of Australians are expected to be using real-time payment solutions by 2023, according to a study by Visa. The number of people using real-time payments looks set to more than double to 28% this year, up from 12% in 2018, with all of the big four banks now offering the service to their customers. The figure is expected to continue increasing to eventually hit 67%, which will equate to 3.1 billion transactions per year, by 2023.
Read more about the development here.
InstaReM Joins Visa Fintech Programme
Cross-border payments company InstaReM, which has operated in Australia since 2015, has joined Visa’s fintech fast-track programme in Asia Pacific, enabling it to tap into the group’s payments network. The two companies will work together to build new solutions to move money between different countries in a fast and convenient way. The move will reduce the time in which InstaReM can issue payment cards to its partners to just four weeks, down from six to nine months now.
Read more about the development here.
Open Banking to Launch in July
The launch of open banking in Australia on July 1 will encourage competition and innovation in the financial services sector. The move will enable customers to agree for data that financial institutions hold on them to be shared with third-party service providers through open APIs. It is expected to lead to innovations, such as platforms that enable consumers to keep track of all of their financial products in one place, as well as a more streamlined application process for financial products.
Read more about the development here.
Funding Boost for Financial Regulation
Financial regulators in Australia are set to receive an AUD550 million funding boost in the Budget. The money will be used to oversee the implementation of recommendations made by the Royal Commission in its inquiry into the financial services sector. These include creating a new oversight body for Australia’s corporate regulators and an overhaul of remuneration structures across the industry. The Government will allocate AUD400 million to the Australian Securities and Investments Commission and AUD150 million to the Australian Prudential Regulation Authority over the coming four years.
Read more about the development here.
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Sources: IMF, Global Finance Magazine, World Economic Forum, PwC, Australian Prudential Regulation Authority, Bank for International Settlements, Deloitte
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