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When experts talk about super, they often warn about the importance of not going over your contributions caps, but you don’t always hear about what happens if you do.
Although carefully monitoring the amount of contributions you or your employer makes into your super account each year is the wisest course of action, if you do go over a cap it’s best not to panic.
To learn more about how much you can contribute and what happens if you exceed your caps, read on for SuperGuide’s simple explanation on navigating the often complex world of contributions caps.
Your super contributions: What are the 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 (2018/2019)|
|Concessional (before-tax) contributions|
|Non-concessional (after-tax) contributions|
If your contributions amounts go over these caps, you may have to pay extra tax. The actual amount of tax will depend on your age, the financial year your contributions relate to, and whether the contributions are concessional (before tax) or non-concessional (after tax).
Going over your concessional (before-tax) contributions cap
It’s important to ensure you do not exceed your concessional contributions cap for the year. Your annual concessional (before-tax) contributions 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)
Important note: 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.
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 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).
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.
I’ve exceeded my concessional (before-tax) contributions cap: What happens now?
If you exceed your concessional contributions cap, the excess amount is included in the amount of assessable income in your tax return and you will pay tax on it at your marginal tax rate.
Important note: When concessional (before-tax) contributions are received by your super fund, you pay 15% tax on them.
If you go over your contributions cap you will have to pay extra tax, however, the ATO will recognise you have already paid 15% tax on the contributions when it processes your tax return and sends you a determination.
From 2013/2014 onwards, if you have excess concessional contributions the ATO issues you with an excess concessional contributions (ECC) determination and advises you what actions you can take. You will also receive an income tax Notice of Assessment.
The ECC determination will note your amount of ECC, the ECC charge imposed by the ATO and the period and interest rate for the ECC charge.
The ECC charge (or interest rate) is designed to compensate for the fact that the tax on your excess contribution is being collected later than if you had paid normal income tax on the excess contribution amount. It is calculated from the start of the income year in which the ECC were made and ends the day before the tax is due to be paid under your first income tax assessment for that year.
Interest rates for the ECC charge are updated each quarter. During the January – March 2019 period, the annual rate for the ECC charge was 4.94%.
Note: If the information in your ECC determination is incorrect, you can contact your super fund and ask it to amend its report to the ATO if there were incorrectly reported contributions. You can also contact the ATO and ask to amend your tax return if you made an error or did not claim the correct personal super contribution tax deduction.
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.
Going over your non-concessional (after-tax) contribution cap
It’s also important to ensure you do not exceed your non-concessional (after-tax) contributions cap each year. All non-concessional contributions made to all of your super accounts are added together and counted towards the non-concessional contributions cap. Your annual non-concessional contributions include:
- personal contributions from your take home pay
- spouse contributions
- 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)
Important note: 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 that year, you will be considered to have excess non-concessional contributions.
When counting your annual non-concessional (after-tax) contributions, it’s important to check when these contributions are received by your super fund – not when they were sent.
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.
I’ve exceeded my non-concessional (after-tax) contributions cap: What happens now?
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):
Withdraw the excess non-concessional contributions and 85% of the associated investment earnings on the excess contributions within 60 days of the issue date of the determination.
Note: The full amount of associated earnings are included in your income tax assessment and will be taxed at your marginal tax rate, although you will receive a 15% tax offset to take into account the 15% tax already paid by the super fund on those earnings.
Leave the excess non-concessional contributions and associate earnings in your super account. If you choose this option, 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.
You must select this option if your only super account is in a defined benefit super fund.
|Financial year||Non-concessional contributions cap||Tax on amounts over contributions cap|
|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)|
Source: ATO website
If you do not select an option within 60 days of an ENCC determination being issued, from 1 July 2018 onwards the ATO will automatically request your super fund to release the excess contributions and 85% of the associated earnings.
The ATO then amends your income tax assessment to include the associate investment earnings and you pay tax on them at your marginal tax rate. The money released from your super fund is used to pay outstanding tax or government debts, with the remainder being refunded to you.
If you think your excess contributions amount is wrong
Sometimes super funds make mistakes, so if you receive a notice from the ATO about excess contributions and you believe it’s wrong, the first thing to do is contact your super fund to check your contributions for the last financial year.
Your super fund can only send a new report about your contributions to the ATO if it made a mistake, not to help you avoid an excess contributions bill.
If your super fund 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 going over your contributions caps
- Ensure you know your annual caps (see above).
- Monitor the amount of contributions you make – and those of your employer – into your super account by contacting your super fund.
- 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 they are received by your super fund.
- Count all your contributions – especially if you have multiple employers – when working out your annual contributions amount.
- Remember, if you split your concessional contributions and give some to 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.
- If you claim a tax deduction for your personal super contributions, only the amount permitted by the ATO counts towards your concessional contributions cap.
- Sending off a contribution payment is not the key date, they are only counted towards your contributions cap when they are received by your super fund.
For more information, see SuperGuide article Beginner’s guide to making super contributions