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When experts talk about super, they frequently warn about the importance of not going over your annual contributions caps, but you don’t often hear what happens if you do.
The first thing to remember is not to panic.
To help you understand what to expect if you do exceed your contribution cap, SuperGuide has put together a simple explainer.
What are the super contributions caps?
Given the generous tax benefits available for holding your retirement savings in the super system, the government has put in place strict annual caps or limits on the amount of both concessional (before-tax) and non-concessional (after-tax) contributions that can be made into your super account.
Annual cap or limit
Concessional (before-tax) contributions
- $27,500 regardless of age
- If you have a Total Super Balance of less than $500,000 on 30 June of the previous financial year, you can utilise any unused amount of your cap for up to five years to make a carry-forward contribution
Note: From 1 July 2017 to 30 June 2021, the annual concessional contributions cap was $25,000.
Non-concessional (after-tax) contributions
- $110,000 for the annual general non-concessional contributions cap
- Up to $330,000 over a three-year period if you are aged under 75 and are eligible to use a bring-forward arrangement
- Nil if your Total Super Balance is greater than the transfer balance cap ($1.9 million from 1 July 2023)
Note: From 1 July 2021 to 30 June 2023, the Total Super Balance limit was $1.7 million.
If your contributions amounts go over these caps, you may have to pay extra tax. The actual amount of tax will depend on various factors such as your age, the financial year your contributions relate to, and whether the contributions are concessional or non-concessional.
Exceeding your concessional (before-tax) contributions cap
It’s important to monitor your annual concessional contributions, which include:
- Superannuation Guarantee (SG) contributions
- Award contributions
- Additional employer contributions
- Salary-sacrifice payments
- Personal contributions for which you claim a tax deduction
- First Home Super Saver Scheme contributions (if made as concessional contributions)
I’ve exceeded my concessional cap: What happens now?
The short answer is, if you go over your concessional contributions cap, the excess amount you contributed is included in the amount of assessable income in your tax return and you pay tax on it at your marginal tax rate.
You can decide to withdraw up to 85% of your excess concessional contributions to help pay the tax, or you can leave the excess contribution in your super account and pay the income tax bill from money outside the super system. If you leave the excess contributions in your super account, they will be counted towards your annual non-concessional contributions cap.
When you exceed your concessional contributions cap and have to pay tax, the ATO recognises you have already paid 15% tax on the contributions and gives you a tax offset.
The ATO issues you with an excess concessional contributions (ECC) determination and advises you what actions you can take. You also receive an income tax Notice of Assessment.
Exceeding your non-concessional (after-tax) contribution cap
You also need to keep an eye on your annual non-concessional contributions. All the non-concessional contributions made to all your super accounts count towards the annual cap and include:
- Personal non-concessional contributions
- Contributions your spouse makes to your super fund
- Excess concessional (before-tax) contributions you have not elected to release from your super fund
- Retirement benefits you withdraw and recontribute into your super account (recontribution strategy).
When you exceed the annual cap and are eligible, a bring-forward arrangement is automatically triggered. The bring-forward rule allows you to contribute up to three times the annual cap in one year without generating excess contributions.
I’ve exceeded my non-concessional cap: What happens now?
If you exceed your non-concessional contributions cap, you can choose either to withdraw the excess amount or leave it in your super account.
When you withdraw the excess amount, there is no additional tax on the contribution.
If you don’t withdraw the excess non-concessional contributions from your super account, you will be required to pay extra tax on the amounts over your contributions cap.
If you have exceeded your non-concessional contributions cap, the ATO will issue you with an excess non-concessional contribution (ENCC) determination explaining your options and asking you to make a choice (which you cannot alter after it is made).
You must not apply to your super fund to release an amount relating to exceeding your cap and you must wait until the ATO sends you an ENCC determination.
Once the determination is issued, you have 60 days from the date of the ATO’s ENCC determination to choose one of the two following options:
Withdraw both the entire excess non-concessional contributions and 85% of the associated earnings on these contributions.
The associated earnings are taxed at your marginal tax rate, less a 15% tax offset for the tax already paid by your super fund on those earnings.
When the associated earnings amount is included in your assessable income, it may affect government benefits you receive such as Centrelink, Medicare levy surcharge, Division 293 tax, child support and eligibility for PAYG instalments.
Leave the excess non-concessional contributions and associate earnings in your super account.
If you choose to leave the excess contributions in your account, these amounts are taxed at the top marginal tax rate – even if your marginal tax rate is lower – and must be paid within 21 days. As non-concessional contributions are from after-tax money, this means you are paying double taxation on the money.
This tax must be paid from your super and the ATO will send a release authority to your super fund to release the required amount from your super account.
Help, my contributions amount is wrong!
Sometimes super funds make mistakes, so if you receive a notice from the ATO about excess contributions and believe it’s wrong, the first thing to do is contact your super fund to check your contributions for the previous financial year.
Your super fund can only send a new report about your contributions to the ATO if it has made a mistake, not to help you avoid an excess contributions bill.
If your super fund has made a mistake, it is required to correct the records with the ATO and cannot refuse to do so. If you have problems, contact the ATO on 13 10 20.
You can use the ATO’s online services to view information about your concessional, carry-forward and employer contributions. It also lists any bring-forward arrangements you have in place and your Total Superannuation Balance.
10 tips to avoid exceeding your contributions caps
- Ensure you’re familiar with the annual contributions caps.
- Monitor the amount of contributions you make – and those of your employer – by contacting your super fund (or funds if you have more than one).
- Check with the ATO, as it maintains a record of how much you have contributed into your super account.
- Check when your employer pays concessional contributions and when these were received by your super fund.
- Count all your contributions – especially if you have multiple employers – when calculating your annual contributions amount.
- Recognise that if you split your concessional contributions with your spouse, these contributions still count towards your concessional cap.
- Ensure you know your Total Superannuation Balance.
- Check if your employer pays costs (such as super administration fees and insurance premiums) on your behalf to your super fund, as these count towards your concessional contributions cap.
- Ensure you add any amount you claim as a tax deduction for your personal super contributions towards your concessional contributions cap.
- Sending off your super contribution is not the date used to determine when a contribution is made during a particular financial year. Your contribution is counted towards your annual contributions cap when it is received by your super fund.