Excess contributions¶

There are limits, called caps, on how much can go into super each year at the concessional tax rates. If your contributions go over a cap, there are tax consequences. The good news is that the ATO does not simply keep the extra — but the extra amount is taxed differently, and you may need to take action.

This lesson explains, in plain terms, what happens if you go over a cap and what your choices are. It is general information only, so always check your own situation with the ATO.

In one line

Going over a contribution cap has tax consequences — but the ATO gives you options, including releasing some of the extra amount from your super.

Why this matters¶

It is easy to go over a cap without meaning to. Your employer's contributions, your salary sacrifice, and any personal contributions all count towards the caps. If you add them up wrong, you can tip over the limit and face an unexpected tax bill. Knowing what happens helps you plan and check your totals before you contribute.

What you will learn¶

What happens if you exceed the concessional (before-tax) cap
What happens if you exceed the non-concessional (after-tax) cap
How to avoid going over a cap

Understanding the concept¶

There are two caps, and going over each one is handled differently.

Concessional (before-tax) contributions include employer contributions, salary sacrifice, and any personal contributions you claim a tax deduction for. If you go over the concessional cap, the ATO says the excess amount is included in your assessable income — the income your tax is worked out on — and taxed at your marginal rate (the rate that applies to your income). Because your super fund has already paid some tax on that amount, you get a tax offset for that fund tax, so you are not taxed twice on the same money. You can also elect (choose) to have some of the excess released from your super to help pay the resulting tax.

Non-concessional (after-tax) contributions are amounts you put in from money that has already been taxed, so you do not claim a deduction for them. If you go over the non-concessional cap, the ATO gives you a choice. You can withdraw the excess amount (along with an amount for the earnings on it, called associated earnings), or you can leave it in super — but if you leave it, the excess is taxed at a high rate.

In both cases the ATO writes to you with a determination that sets out the excess amount and your options. You do not have to work it out yourself.

For accountants & bookkeepers

For excess concessional contributions, the ATO includes the excess in assessable income and applies a 15% tax offset for the contributions tax the fund has paid. The client can elect to release up to 85% of the excess concessional amount from super to meet the resulting liability; any excess concessional amount not released also counts towards the non-concessional cap. For excess non-concessional contributions, the client can elect to release the excess plus 85% of the associated earnings, with the associated earnings amount included in assessable income; if they leave the excess in super, it is taxed at the top rate. Always paraphrase the client's determination and confirm the current figures with the ATO.

Example¶

Jordan has an employer paying super, and Jordan also sets up salary sacrifice partway through the year. Jordan does not add the two together and ends up going over the concessional cap. After the tax return is processed, the ATO sends Jordan a determination. The excess amount is added to Jordan's income for the year and taxed at Jordan's marginal rate, with an offset for the tax the fund already paid. Jordan chooses to release some of the excess from super to help pay the extra tax, and follows the steps in the ATO letter. Had Jordan checked the running total before starting salary sacrifice, the excess could have been avoided.

Common mistakes¶

Counting only your own contributions and forgetting employer super counts towards the concessional cap too.
Assuming the ATO keeps the whole excess — instead it is taxed, and you often have options, including releasing some from super.
Ignoring the ATO's determination letter — it sets out the amount and the choices, and some choices have deadlines.
Not checking your year-to-date totals before making a large one-off contribution.

How this works in myaccountant¶

In the app — when you run a pay run, myaccountant works out each employee's employer super and salary sacrifice, and reports those amounts through Single Touch Payroll (STP) so they appear on the employee's income statement. myaccountant does not track a person's lifetime contribution caps across all their funds — checking whether you are near a cap is done with the ATO, using your income statement and your fund statements.

Key points¶

Caps limit how much can go into super at concessional rates each year.
Excess concessional amounts are added to your income and taxed at your marginal rate, with an offset for the tax the fund already paid.
You can elect to release some excess concessional amount from super to help pay the tax.
Excess non-concessional amounts can be withdrawn (with associated earnings) or left in super and taxed at a high rate.
The ATO sends a determination setting out the excess and your options.
Check your totals with the ATO before making large contributions.

Learn next¶

General information only — not tax, super or financial advice.

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