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When experts talk about super, they frequently warn about the importance of not going over your 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 about what will happen.
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 both the amount of concessional (before-tax) and non-concessional (after-tax) contributions that can be made into your super account.
| Contribution type | Annual cap or limit (2020/2021) |
|---|---|
| Concessional (before-tax) contributions |
|
| Non-concessional (after-tax) contributions |
|
* Legislation is currently (July 2020) before the House of Representatives that will raise to 67 the maximum age limit for using a bring-forward arrangement. This legislation is yet to be passed and enacted into law.
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.
Need to know
Your contributions cap applies to the contribution totals for all your super accounts across different super funds.
1. 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)
Good to know
Keeping track of the amount of contributions and when they were received by your super fund is essential, as it will help you avoid going over your contributions cap and potentially paying extra tax.
It’s up to you – not your super fund or the ATO – to keep track of all the concessional contributions made by both you and your employer into your super account.
Case study
Alex receives his salary payments every fortnight, but his employer is not required to make SG contributions for the April to June quarter (ending 30 June) into his super account until 28 July, which is in the following financial year. This is also the case with salary-sacrifice payments if the timing of payments is not specified in a salary-sacrifice agreement.
Alex’s salary sacrifices $150 each fortnight into his super account. His employer puts aside this money (plus the relevant SG payment) and posts a cheque to the super fund on 30 June 2020. It is received by the super fund on 1 July 2020.
Although the SG and salary-sacrifice amounts relate to Alex’s pay for the period 1 April to 30 June 2020, these contributions are counted towards Alex’s concessional (before-tax) contributions cap for the new financial year (2020/21).Alex’s salary sacrifices $150 each fortnight into his super account. His employer puts aside this money (plus the relevant SG payment) and posts a cheque to the super fund on 30 June 2019. It is received by the super fund on 1 July 2019.
Although the SG and salary sacrifice amounts relate to Alex’s pay for the period 1 April to 30 June 2019, these contributions are counted towards Alex’s concessional (before-tax) contributions cap for the new financial year (2019/2020).
I’ve exceeded my concessional cap: What happens now?
The short answer is, if you go over your concessional contributions cap, the excess amount 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 non-concessional contributions cap.
Good to know
When concessional (before-tax) contributions are received by your super fund, you pay 15% tax on them.
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.
The ECC determination will note your amount of ECC and the ECC charge imposed by the ATO, together with the period and interest rate for the ECC charge. Interest rates for the ECC charge are updated each quarter. During the April to June 2020 period, the annual rate for the ECC charge was 3.89%.
Super tip
If you think you may go over your concessional contributions cap in the current financial year, it’s important to take action, or you risk paying extra tax.
The first step is to stop or reduce any further concessional contributions (like salary-sacrifice payments) if you can, or to delay until the next financial year any personal super contributions you intend to claim as a tax deduction.
2. 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 of your super accounts count towards the 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 re-contribute into your super account (re-contribution strategy).
Good to know
From 1 July 2017, your non-concessional cap will be nil for a financial year if you had a Total Super Balance of $1.6 million or more at 30 June of the previous financial year. If you make any non-concessional contributions during the financial year, you will be considered to have excess non-concessional contributions.
I’ve exceeded my non-concessional cap: What happens now?
If you exceed your non-concessional contributions cap, you can choose to either 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
Making excess non-concessional (after-tax) contributions during a financial year will result in you having to pay extra tax on amounts over your contributions cap, unless you withdraw them from your super account.
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 have 60 days from the date of the determination to choose an option:
Option 1
Withdraw the 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.
Option 2
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.
The associated earnings on your excess contributions are also taxed and may affect other government benefits such as Centrelink, Medicare levy surcharge and child support.
Note: You must select this option if your only super account is in a defined benefit super fund.
Need to know
If you do not choose one of the two options, the ATO will automatically default you into Option 1 and release your excess non-concessional contributions from your super account.
Tax rate on excess non-concessional contributions
| Financial year | Non-concessional contributions cap | Tax on amounts over contributions cap |
|---|---|---|
| 2020/21 | $100,000 | 47% (including Medicare levy) |
| 2019/20 | $100,000 | 47% (including Medicare levy) |
| 2018/19 | $100,000 | 47% (including Medicare levy) |
| 2017/18 | $100,000 | 47% (including Medicare levy) |
| 2016–17 | $180,000 | 47% (plus 2% budget repair levy) |
| 2015–16 | $180,000 | 47% (plus 2% budget repair levy) |
| 2014–15 | $180,000 | 47% (plus 2% budget repair levy) |
| 2013–14 | $150,000 | 46.5% |
Source: ATO
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.
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 a contribution is not the date when your contribution is counted towards your cap each financial year. Contribution are counted when they are received by your super fund.
For more information, see SuperGuide article Beginner’s guide to making super contributions.
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