Microsoft Australia doubles net profit following local revenue recognition boost

Although the company had an income tax charge of AU$53 million for 2018, it paid AU$175 million to the ATO throughout the year.
Written by Chris Duckett, Contributor

On the face of it, Microsoft Australia had an absolute bumper year, seeing revenue jump to AU$2.28 billion for the year to June 30, 2018, against AU$1.13 billion a year prior, and doubling its net profit from AU$47 million last year to AU$100 million this year.

However the company's disaggregated revenue shows the tale of the tape. While its revenue from services and commissions from related entities are relatively steady at AU$192 million and AU$600 million respectively, Microsoft saw revenue from products jump by over AU$1 billion from AU$360 million to AU$1.48 billion.

Microsoft said in its yearly filing that due to its new accounting methods for revenue recognition, of which 2018 is the first year, it needed to restate its 2017 numbers.

Consequently, Microsoft reported an increase of AU$77 million from customer contracts, and a AU$3.9 million jump in after-tax profit.

"The most significant impact of the standard relates to our accounting for software licence revenue," Microsoft said.

"Specifically, for Windows 10, we recognise revenue predominately at the time of billing and delivery than rateably over the life of the related device."

The company is also recognising revenue from contracts at their execution, rather than over the life of the deal.

"Revenue recognition related to our hardware, cloud offerings (such as Office 365) and professional services remains substantially unchanged," the company said.

The company said it had an income tax charge of AU$53 million for 2018, compared to AU$87 million a year prior, but that it had paid AU$175 million in income tax over the course of 2018. Microsoft added that the Australian Taxation Office is currently conducting a GST audit for the period of October 2012 to December 2017.

Against the AU$110 million it paid last year, Microsoft Australia did not pay its parent company a dividend this financial year.

Microsoft Australia said it has 1,404 employees and its primary activity is the marketing and distribution of software. It said it has an economic dependency with Microsoft's Singapore operations, and from September 1, a dependency on Microsoft Ireland.

At the same time, Microsoft Datacenter Australia reported its financials, and saw revenue jump from AU$176 million a year prior to AU$397 million, with net profit doubling from AU$8.7 million to AU$19.8 million. The datacentre company saw its income tax expense rise from AU$4.3 million to AU$9.6 million.

The company, which said its primary purpose is to support related parties, reported its bandwidth expense grew to AU$8.7 million from AU$3.4 million last year.

Microsoft Datacenter Australia said it had some of its key management staff paid by Microsoft Australia, however the companies have different parent entities despite maintaining the same economic dependency arrangements. Overall, the company's employee benefits line item spiked from AU$0.91 million to AU$5.6 million.

In recent years, Australia has been increasingly strong-arming multinational tech giants to correctly recognise local revenue.

Google Australia reported its first set of figures under the AASB15 standard in May, reporting AU$125 million in net profit, while saying it would fight an amended tax assessment.

At the start of the year, Apple Australia paid 40 percent more income tax and almost double its pre-tax profit to AU$255 million.

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