Australia

Introduction

 

About Australia

Australia is the 13th largest economy in the world and is one of the largest mixed market economies in the world. Strong rule of law, a transparent and structured political system and an openness by multiple industries to foreign competition, 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 capital gross domestic product (GDP), Australia is ranked fifth in the world.

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 in supporting China's growing economy. Strong investments 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 supported by efficient regulatory frameworks and an established financial system; they collectively reinforce Australia's status as an attractive investment destination.

 

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 seventh in the world for financial market development in The Global Competitiveness Report 2015-2016.
  • It ranks Australia third in the world for the soundness of its banks 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

  • The Australian banking sector is dominated by four large banks. There are also more than 60 credit unions, building societies and mutual banks, as well as foreign banks and foreign subsidiary banks.
  • Australia’s foreign exchange market has an average daily turnover of USD 121bn, 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 – all are available.

 

Regulatory Bodies

  • The banking industry is regulated by the Australian Prudential Regulation Authority and the Australian Securities & Investments Commission.

 

Tax

  • The corporate income tax rate is 30%, falling to 28.5% for companies with an aggregate turnover of less than AUD 2 million.
  • Resident companies are subject to Australian income tax on their worldwide income. Generally, non-resident companies are subject to Australian income tax on Australian-sourced income only.
  • Foreign income tax offsets are available to avoid double taxation on income that is assessable in Australia.
  • Branch profits are subject to corporate income tax. There is no withholding tax on repatriated profits.
  • Foreign currency gains and losses are recognised when realised and are included in income assessments, subject to limited exceptions.
  • Withholding tax is charged at 30% on dividends and 10% on interest for companies that are resident in countries with which Australia does not have a tax treaty. Rates vary for countries with which there is a tax treaty in place.
  • All states and territories impose a stamp duty on a wide variety of transactions at different rates.
  • Goods and Services Tax is charged at 10%.
  • Australia has tax treaties with more than 40 countries and territories, and Tax Information Exchange Agreements with more than 35 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 AUD 1 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.  
  • It has two financial centres, namely 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 Asia Pacific.
  • Australia has a liquid foreign-exchange market and the necessary clearing and settlement systems to facilitate smooth financial transactions. It is in the process of building a new and faster payments infrastructure.
  • 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 is permitted for resident and non-resident companies.

 

Banking

 

Banking System

  • There are 33 Australian-owned banks, seven foreign-subsidiary banks and 42 branches of foreign banks. In addition, there are four building societies and 56 credit unions.

  • The banking sector is dominated by four Australian-owned banks: Commonwealth Bank, ANZ Bank, Westpac and NAB. Together they make up 88% of total banking assets.

  • 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: 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.

  • If a company continues business in Australia but is not physically present there, it may be registered as a foreign corporation.

  • 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.
  • 74 licensed bank participants (required to hold ESAs with the RBA) and 96 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.

 

 

Australian Payments Network

 

(formerly Australian Payments Clearing Association (APCA))

 

 

Payment systems regulator

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

 

NPP

(New Payments Platform)

 

 

Low value payment system

  • Due to be launched in 2017.
  • Provides basic infrastructure available to all financial institutions, businesses and consumers to allow fast, efficient payment system.
  • Payments settled in real time, even when payer and recipient have accounts with different banks. 
  • Developed by authorised deposit-taking institutions (17) and the RBA.

 

 

HVCS

(High Value Clearing System)

 

Electronic high value exchange and multilateral net settlement system

  • Processes high value and urgent AUD-denominated interbank transfers (no value threshold).
  • Payments settled in real time and with immediate.
  • Final settlement done across participants' ESAs held at the RBA through 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.
  • 72 participants, including the RBA

 

 

BECS

(Bulk Electronic Clearing System)

 

Interbank bulk electronic exchange and settlement system

  • Processes low value electronic retail transactions (including regular direct debits and direct credits).
  • 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.
  • 71 participants, including the RBA

 

IAC

(Issuers and Acquirers Community)

 

Exchange and settlement system

 

  • Processes card-based EFTPOS and ATM transactions.
  • International card providers such as Visa and MasterCard are processed by their respective card schemes.
  • It replaced the Consumer Electronic Clearing System (CECS)/Clearing System 3 (CS3) in 2016.
  • 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.
  • 16 participants, including the RBA

 

Payment Instruments

 

Credit Transfers

  • Paper-based and 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 (autodebits)

  • Used for low value, regular payments such as utility bills. 
  • Processed through BECS next day.

 

Cheques

  • Cheque use is in decline (drop of nearly 73% in the last 10 years) 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 usually available within three days.

 

Card Payments

  • Card payments are becoming an increasingly popular form of payment, especially the use of debit cards.
  • 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 is EFTPOS, owned by EFTPOS Payments Australia, 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.
  • There are 954,174 EFTPOS terminals and 2,879 ATM terminals nationwide.
  •  

Demographics

 

Recent developments

 

UK-Australia FinTech Bridge Created

Regulators in Australia and the UK have signed an agreement to create a FinTech Bridge to increase collaboration in the sector between the two countries. The agreement will make it easier for FinTech startups to enter regulatory sandboxes in the other country. It could also lead to licences being issued more quickly for firms that are already authorised in the other jurisdiction. The two countries will work together to identify emerging FinTech trends and share regulatory expertise.

Read more about the development here

 

New Payments Platform Launched

Australia’s New Payments Platform (NPP), which will promote competition and innovation in the payment services sector, has been launched with 60 banks and credit unions. The platform enables businesses and individuals to make and receive real-time payments on a 24/7 basis, while it also has the capacity for people to include more information with payments. The service will be rolled out to more accounts and financial institutions in the coming months.

Read more about the development here

 

Chinese Tourists drive Mobile Payment Momentum

Chinese tourists are driving momentum for mobile payment systems in Australia. Alipay recently signed an agreement with Smartpay enabling Alipay Mobile Wallets to be used at more than 25,000 retailers with Smartpay eftpos and credit card terminals across Australia and New Zealand. Alipay also has agreements with Quest Payment Systems, enabling a further 8,000 merchants in Australia to offer the service. The Commonwealth Bank of Australia and Cabcharge now use Alipay as does Cue Clothing Company, which can also accept payments through WeChat Pay.

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 World Economic Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

Last updated on 20 May 2018