Experts often caution about the significance of staying within your annual super contribution limits, but it’s less common to hear about the consequences of exceeding them. The most important thing is to remain calm.
To help you understand what to expect if you do exceed your contribution cap, we have put together a simple explainer.
What are the super contributions caps?
Due to the substantial tax advantages of keeping your retirement savings within the super system, the government has established annual caps or limits on the amount of both concessional (pre-tax) and non-concessional (post-tax) contributions you can make to your super account.
Contribution Type and its Annual Cap/Limit
1) Concessional (before-tax) contributions
- Annual contribution cap is $30,000 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. You will not exceed the cap unless you use up both the current year’s cap and all the unused cap space that is available from prior years.
2) Non-concessional (after-tax) contributions
- $120,000 for the annual general non-concessional contributions cap.
- Up to $360,000 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 was equal to or exceeded the transfer balance cap for the financial year you are contributing, as of the previous 30 June. In 2024–25, the transfer balance cap is $1.9 million.
If your contributions go over certain limits, you will have to pay an extra tax. This extra tax is meant to make it feel like you didn’t contribute more than the allowed amount. The tax will be based on your normal tax rate for any extra concessional contributions and on the earnings from any extra non-concessional contributions.
Exceeding your concessional (before-tax) contributions cap
It’s crucial to keep track of your yearly concessional contributions, which comprise:
- Superannuation Guarantee (SG) contributions
- Award contributions
- Additional employer contributions
- Salary-sacrifice payments
- Personal contributions for which you claim a tax deduction
Important Information
Keeping track of the quantity of contributions and the timing of their deposits into your super fund is essential. This ensures you stay within your contributions cap and avoid the possibility of additional tax.
It is your duty—not that of your super fund or the ATO—to maintain a record of all contributions made by both yourself and your employer into your super account.
I’ve exceeded my concessional cap: What happens now?
If you exceed your concessional contributions cap, the excess amount is included in your assessable income on your tax return, and you are taxed at your marginal tax rate. You receive a 15% tax offset because you have already paid 15% tax to contribute the amount to super.
You can choose 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 with funds from outside the super system. If you leave the excess contributions in your super account, they will count towards your annual non-concessional contributions cap.
The ATO provides you with an excess concessional contributions (ECC) determination and informs you of the possible actions. You can make your decision online via myGov. You also receive an income tax Notice of Assessment.
Exceeding your non-concessional (after-tax) contribution cap
It is important to monitor your yearly non-concessional contributions. All non-concessional contributions to all your super accounts are included in the annual cap, which encompasses:
- Personal non-concessional contributions
- Contributions made by your spouse to your super fund
- Excess concessional (before-tax) contributions you have not chosen to withdraw from your super fund
- Retirement benefits that you withdraw and then recontribute to your super account
If you exceed the annual cap and are eligible, a bring-forward arrangement is automatically initiated. This rule permits you to contribute up to three times the annual cap in one year without incurring excess contributions.
Important Information
Your non-concessional cap will be zero for a financial year if your Total Super Balance was equal to or exceeded the general transfer balance cap as of 30 June of the prior financial year. The general transfer balance cap is $1.9 million for 2024–25.
If you are in this situation and make any non-concessional contributions during the financial year, it will be regarded as 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 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, but you must pay tax on the earnings that the ATO deems your excessive contribution has earned.
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). This choice can be made online via myGov.
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.
Note: You are required to file a tax return for the financial year when you surpass your non-concessional contributions cap. If you are unable to file your tax return by the deadline and wish to prevent the ATO from issuing an ENCC determination before your filing, you must apply for a lodgement deferral.
After the determination is released, you have 60 days from the date of the ATO’s ENCC determination to select one of the two options below:
Option 1
Withdraw the entire excess non-concessional contributions along with 85% of the related earnings on these contributions.
The related earnings are taxed at your marginal tax rate, minus a 15% tax offset for the tax already paid by your super fund on those earnings.
Including the related earnings amount in your assessable income may impact government benefits and charges such as Centrelink payments, Medicare levy surcharge, Division 293 tax, child support, and eligibility for PAYG instalments.
Option 2
Retain the excess non-concessional contributions and related earnings in your super account.
If you decide to retain the excess contributions in your account, these amounts are taxed at the highest marginal tax rate—even if your marginal tax rate is lower—and must be paid within 21 days. Since non-concessional contributions come from after-tax money, this results in at least 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 necessary amount from your super account.
Choosing the second option is very uncommon due to the severe additional tax that applies. However, if your only super account is in a defined benefit super fund that cannot accept a release authority, there is no other option. The fund cannot release the excess contributions or the excess contribution tax, meaning the tax will be paid from your own funds.
Note: If you do not select one of the two options within 60 days, the ATO will automatically place you in Option 1 and release your excess non-concessional contributions and 85% of related earnings from your super account.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au