Australia is one of the oldest and most stable democracies in the world. Its political and legal institutions are recognised globally for their transparency, impartiality and robustness and it provides a safe and secure environment for financial services firms looking to hub regional operations.

The financial services regulatory framework in Australia is highly regarded internationally. In recent years the Australian Government has worked to ensure that Australia remains a competitive investment destination. The continual reform process covering a wide range of issues relevant for financial services providers such as regulation, taxation and competition, ensures Australia remains an attractive place in which to conduct a financial services business.

The links below provide more information about specific aspects of the reforms and an overview of Australia's regulatory system:

• Australian Taxation
  This section contains information on Australia's Taxation system. Areas covered include taxation of individuals and companies, taxation of venture capital, GST, interest withholding tax and an overview of international taxation arrangements.
  
  
• Competition Policy
  Australia is committed to robust and effective competition law and its enforcement to protect business and consumers and to promote fair competition. This section contains an overview of Australia's competition policy.
  
  
• Regulatory Framework
  Australia has one of the most transparent and efficient regulatory environments in the world. This section contains an overview of Australia's regulatory system along with information on anti-money laundering rules and harmonising financial services laws. The section also contains information on the Corporate Law Economic Reform Programme (CLERP).
  

Australian Taxation

Key features of recent tax reforms in Australia are described below.

Indirect Tax

A 10 per cent Goods and Services Tax (GST) on most goods and services consumed in Australia was introduced on 1 July 2000. Implementing a broad based, indirect tax system more reasonably shares the tax burden. The GST revenue is paid to State and Territory Governments, providing them with funding for services, such as health and education. Industry costs have reduced due to the replacement of the old wholesale sales tax and other embedded taxes with the GST.

Financial institutions duty and stamp duty was removed on most share transactions from 1 July 2001.

Personal Tax

The new thresholds resulting from the most recent review of Australia's personal tax scales are in place for income years beginning 2005-06: 

• Excess imputation credits are refunded.
• The capital gains tax rate for individuals has been halved.

Business Tax

From 1 July 2001, the following reforms have applied:

• a reduction in the company tax rate to 30 per cent;
• a unified capital allowance regime; and
• an extension to the thin capitalisation regime, which serves to prevent multinational corporations from allocating a disproportionate amount of debt to their Australian operations.

From 1 July 2002 the following reforms have applied:

• the consolidations regime that allows company groups to lodge a single tax return and helps to overcome tax impediments to restructuring;
• the demerger provisions to further facilitate group restructuring; and
• the simplified imputation regime.

Leasing

The Government has announced a commitment to reforms of the existing tax treatment of leasing and similar arrangements between taxpayers on the one hand and tax-exempt and non resident end users on the other, for the financing and provision of infrastructure and other assets.

Taxation of Financial Arrangements (TOFA)

The Government has implimented two stages of its four stage reform of provisions regarding the taxation of financial arrangements and has announced a timetable to implement further reforms recommended in the Ralph Report on business taxation.

New provisions that determine whether an interest in an entity is ‘debt’ or ‘equity’ have been introduced, as have new provisions for the taxation of foreign currency denominated transactions.

New tax-timing arrangements including a mark-to-market election, an accruals/realisation framework, hedging rules generally, disposal rules, and synthetic arrangements will not commence before 1 July 2005.

International Tax Review

In May 2003, the Government announced its response to the Board of Taxation's review of International Taxation Arrangements. The reforms are designed to improve the competitiveness of Australian companies with offshore operations. They will also encourage foreign groups to establish regional headquarters in Australia and improve Australia's attractiveness as a continuing base for multinational companies. In particular, the reforms will enhance the competitiveness and reduce the compliance costs of Australian-based managed funds. Changes to Foreign Investment Fund and Interest Withholding Tax, as outlined below, have occurred as a result.

For more information see International Taxation Arrangements

Foreign Investment Fund (FIF) Changes

Qualifying superannuation entities and fixed trusts where all the beneficiaries are complying superannuation entities are exempt from the FIF rules for income years beginning on or after 1 July 2003.

The FIF balanced portfolio exemption threshold has been increased from 5 per cent to 10 per cent for income years beginning on or after 1 July 2003. The management of funds has been removed from the FIF ‘blacklist’.

Interest Withholding Tax (IWT)

Australian widely held public unit trusts are exempt from IWT on interest paid on widely distributed debentures issued to non residents. This change applies to all qualifying debentures issued on or after 23 June 2004.

Foreign Income Concessions and Exemption Changes

The amount of capital gain or capital loss that will be subject to Australia’s capital gains tax rules has been reduced or eliminated, with effect from 1 April 2004, where Australian companies (or Australian controlled foreign companies) sell shares in a foreign company with an underlying active business.

The exemptions for foreign non-portfolio dividends and foreign branch profits have also been extended to all countries, for dividends paid after 30 June 2004. 

Competition Policy

Prohibitions on Anti-Competitive Conduct

Australia is committed to robust and effective competition law and its enforcement, to protect business and consumers and to promote fair competition. Anti-competitive conduct is prohibited by the Trade Practices Act (TPA). This addresses such matters as cartels, misuse of market power, exclusive dealing and anti-competitive mergers and acquisitions.

The TPA is enforced by an independent statutory authority, the Australian Competition and Consumer Commission (ACCC). The ACCC may authorise certain conduct, including anti-competitive mergers, on net public benefit grounds.

Access to Essential Infrastructure

The TPA also facilitates third party access to the services of certain essential infrastructure facilities, fostering competition in upstream and downstream industries.

Prices Surveillance

The Government’s price restriction powers that applied under the Prices Surveillance Act 1983, have now been incorporated into Part VIIA of the TPA. The objects clause of these provisions provide that prices surveillance will be applied in those markets where competitive pressures are not sufficient to achieve efficient prices and protect consumers.

Ongoing National Competition Policy (NCP) reforms

Since 1995 Australia has been undertaking a comprehensive program of competition reforms, intended to encourage competitive outcomes and more efficient use of resources.

To remove unnecessary impediments to competition, regulation that restricts competition or is costly to business is only to be retained or introduced on net public benefit grounds. A further priority is to ensure that government businesses do not enjoy net competitive advantages over their private sector competitors by virtue of their public sector ownership.

A Council Of Australian Governments (COAG) agreed review of the terms and operation of the NCP agreements and the National Competition Council’s assessment role will be undertaken by September 2005.

Increased Competition in Essential Services (Electricity, Gas and Telecommunications)

A single wholesale market for electricity has been established between the eastern states of Australia. State governments and the Australian Government have also introduced a uniform national framework for access to natural gas pipelines. These reforms have opened the energy market to increased competition, with significant efficiency gains.

Australia has the most deregulated telecommunications market in the region, with over 100 licensed telecommunications carriers and internationally competitive call costs.

Regulatory Framework

The Financial Sector Advisory Council (FSAC) released its Review of the Outcomes of the Financial System Inquiry 1997 on 2 August 2004.

It found that Australia's financial system and its regulation are sound and compare favourably with the rest of the world. The Australian economy and its financial system has proven to be resilient in the face of considerable world economic and political turmoil.

FSAC sees globalisation, convergence and technological change to be three important forces that will continue to drive the evolution of the financial system. It identifies the importance for policy development and regulatory structures to keep pace with these forces. FSAC finds that the
Australian regulatory system is fundamentally well-placed to meet these challenges.

A world-class financial sector regulatory regime

Australia has built a world-class financial sector regulatory regime. It provides security and integrity, through a sound, flexible and strong system of financial regulation designed to prevent systemic failure, and avoid unnecessary burdens on business.

On 1 July 1998, the Government established a regulatory framework to facilitate greater financial sector innovation, competition and efficiency, while at the same time maintaining financial sector stability, prudence, integrity and fairness.

Australia's regulatory bodies streamlined

The structure is based on three independent statutory agencies: the Reserve Bank of Australia (RBA); the Australian Prudential Regulation Authority (APRA); and the Australian Securities and Investments Commission (ASIC).

In addition, the Australian Competition and Consumer Commission (ACCC) is a statutory authority responsible for ensuring compliance with competition, access and consumer protection laws.

Australia's two major financial market operators are self-regulatory organisations. The Australian Securities Exchange (ASX) and Sydney Futures Exchange (SFE) monitor market participants' and companies' compliance with their business and listing rules (where relevant). They play a key role as front-line regulators, maintaining high standards of market integrity. This role is supported by ASIC, which has overall regulatory responsibility for securities and futures markets.

Corporate governance framework

The Government is completing a major program of reform of Australia's corporate law, aimed at
streamlining regulation while maintaining market integrity and investor protection. For example, the accounting profession is being reviewed, fundraising regulation has been streamlined, and a more competitive takeover market has been facilitated.

International cooperation

Australia's regulators are actively involved in international forums to improve global regulatory cooperation, particularly in the Asia-Pacific region.

Australia is providing advice and expertise in areas such as improving fiscal transparency, banking supervision and securities regulation to the region.

The ASX has Memoranda of Understanding with a number of overseas exchanges, to improve information sharing and self-regulatory capabilities.

Anti-Money Laundering Rules
 

Australia is a member of the Financial Action Task Force on Money Laundering. It is currently considering changes to its anti-money laundering system to ensure that it continues to model international best practice.

AUSTRAC - the First Financial Intelligence Unit of its Kind in the World

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia's anti-money laundering regulator and specialist financial intelligence unit. The laws governing Australia's anti-money laundering program are contained in the Financial Transaction Reports Act 1988 (FTR Act); the Proceeds of Crime Act 2002 and the Proceeds of Crime (Consequential Amendments and Transitional Provisions) Act 2002.

AUSTRAC Regulates Cash Dealer Compliance with the FTR Act
The term 'cash dealer' is defined in the legislation and includes, but is not limited to:

• authorised deposit-taking institutions such as banks, building societies and credit unions;
• managers and trustees of unit trusts;
• financial institutions;
• insurance companies and insurance intermediaries; and
• stock brokers.

Cash Dealers' Reporting Requirements

The following transactions must be reported to AUSTRAC:

• significant cash transactions - any transaction with a cash component of A$10,000 or more;
• international funds transfer instructions - any instruction for the transfer of funds transmitted electronically, either into, or out of, Australia; and
• suspect transactions - any transaction in which the individuals, monies or circumstances of the transaction cause the cash dealer to have suspicion. The reference to circumstances refers to an apparent lack of commercial logic in the transaction.

Members of the general public and cash dealers are also required to report international currency transfers to AUSTRAC - carrying, mailing or transporting cash amounts of A$10,000 or more into, or out of, Australia.

Know Your Customer

The FTR Act also requires cash dealers to verify the identity of persons who are signatories to accounts. It should be noted that the legislation specifically prohibits accounts being opened or operated in a false name.

Australia a Member of FATF

Australia is a member of the Financial Action Task Force on Money Laundering (FATF), an international, inter-governmental body which sets standards, and develops and promotes policies to combat money laundering and terrorism financing. The FATF has recently revised its Forty Recommendations, the international anti-money laundering standard for governments aiming to meet these objectives. Australia is currently considering changes to its anti-money laundering system to ensure that it continues to model international best practice.

Further Information

AUSTRAC maintains a Help Desk service to advise cash dealers, members of the general public and other interested stakeholders of issues connected to the FTR Act and Australia's broader anti-money laundering environment.

This service can be accessed via the following email address: help_desk@austrac.gov.au

Further information regarding either AUSTRAC or the FTR Act can also be obtained via the AUSTRAC website: www.austrac.gov.au.

Corporate Law Economic Reform Programme (CLERP)

The Government recognises the need for the regulatory framework to keep pace with financial market developments. Accounting standards have been given a more commercial and, where appropriate, international focus, fundraising regulation has been streamlined and a more competitive takeover market facilitated.

Business Regulation to Facilitate Economic Activity and Job Creation

The principles underlying the reform program involve market freedom, investor protection, information transparency, cost-effectiveness, regulatory neutrality and flexibility.

• CLERP has included nine areas of reform, undertaken over a period of years. They are:
• CLERP 1 - Accounting Standards
  - providing a greater commercial and international focus for making accounting standards so that financial reporting standards are more relevant to business
  - commitment to adopting international accounting standards for financial reporting periods beginning on or after 1 January 2005
• CLERP 2 - Fundraising
  - making access to capital easier for small business
• CLERP 3 - Directors' Duties and Corporate Governance
  - introducing a new business judgment rule to provide more certainty for directors
  - new shareholders' rights to take action on behalf of companies
  - facilitating shareholder participation
  - timely, accurate disclosure of information
• CLERP 4 -Takeovers
  - improving takeovers regulation to promote a more competitive market
• CLERP 5 - Electronic Commerce
  - adapting regulation to facilitate the more widespread use of electronic commerce
• CLERP 6 - Financial Products, Service Providers and Markets
  - building a cutting-edge regulatory structure for financial markets, products and issuers, including more consistent and comparable regulation for securities, futures, derivatives, superannuation, general and life insurance and other financial products
• CLERP 7 - Simplified Lodgements and Compliance
• CLERP 9 - Corporate Disclosure
  - encouraging timely and fulsome corporate disclosure
  - facilitating accountability of companies to their shareholders
  - promoting the credibility of financial information through audit independence.

Forthcoming developments
CLERP 8 - Cross-border Insolvency is still to be finalised. 

Harmonising Financial Services Laws

The Australian Government has implemented an integrated regulatory framework for financial products, service providers and markets.

Consistent Regulation of Functionally Similar Products and Markets

As part of the Corporate Law Economic Reform Program (CLERP), the Government has reformed the financial services regulatory regime in line with the recommendations of the Financial System Inquiry (the Wallis Committee).

As a result of CLERP, significant reforms were made to Australia’s financial services regulation. These reforms were designed to build a more flexible and responsive regulatory framework for financial services, enabling Australia to be a preferred global financial services centre.

They assist the financial sector to adapt to change presented by technological developments, globalisation and increased competition.

Key Features

In brief, the reforms provide:

• consistent and comparable disclosure about financial products;
• a harmonised regime for the licensing of financial services providers, whether they are dealing or advising about securities, insurance, derivatives or superannuation;
• minimum standards of conduct for financial service providers dealing with retail clients; and
• an opportunity for greater competition between markets and between clearing and settlement facilities by introducing more flexible regulatory requirements.

The Financial Services Reform Act 2001, which implements the reforms through amendments to Chapter 7 of the Corporations Act 2001 relating to the regulation of financial products, service providers and markets, commenced in March 2002 and came into full effect on 11 March 2004, after a two-year transitional period.

Details about licensing, training, dispute resolution, product disclosure etc may be found at the ASIC website.