Exceeding the concessional contribution cap can lead to extra tax and reporting steps, affecting your assessable income and overall retirement savings strategy.
Many Australians use salary sacrifice and other before tax contributions to boost their super account. Each financial year has a set contributions cap—known as the concessional contributions cap—on how much you can make in pre-tax contributions. If you go over this annual cap, you may face additional tax, changes to your income tax liability, and more paperwork with the Australian Taxation Office (ATO). This article explains how the concessional contributions cap works, what happens if you exceed the limit, and strategies to manage excess concessional contributions.
Understanding the Concessional Contributions Cap
Concessional contributions are contributions made before tax. They include:
Employer contributions, such as the Super Guarantee
Salary sacrifice or pre-tax contributions
Personal contributions you claim as a tax deduction
The general concessional contribution cap is $30,000 per financial year for everyone. If your total super balance was less than $500,000 at the end of the previous financial year, you can carry forward unused amounts for up to five years. This carry forward rule lets you use any unused cap in a later financial year.
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How Contributions Count
Every concessional contribution into any super fund during a financial year adds to your annual cap. The year a contribution counts is when your super fund receives it, not when the money leaves your salary.
Carry Forward Arrangements
If eligible, you can boost your cap using the carry forward rule. Unused amounts from up to five years ago can be added to this year’s cap if your total super balance was under $500,000 on 30 June of the previous financial year.
Tax Consequences of Exceeding the Cap
If your concessional contributions exceed the annual cap, the extra amount is treated as assessable income. That means it is added to your taxable income and taxed at your marginal tax rate, plus the Medicare levy and any applicable contributions tax already paid in your super fund.
Inclusion in Assessable Income
The ATO will issue an excess concessional contributions determination indicating the amount included in your assessable income. You pay income tax on this excess amount at your marginal tax rate, then receive a 15% tax offset for the contributions tax already paid by your super fund.
Additional Tax Charge
On top of income tax, an additional tax charge applies to correct any timing benefits. The ATO calculates this extra tax based on how long the excess amount stayed in your super fund before the determination. You must pay this charge alongside the tax on the excess contributions.
Reporting Requirements and ATO Notices
When excess concessional contributions occur, your super fund and the ATO follow a clear reporting process:
Super Fund Annual Return
Your super fund reports total concessional contributions when lodging its annual return.
ATO Assessment
The ATO compares reported contributions with your cap and issues a notice if you have excess contributions.
Determination and Tax Return
You receive an excess concessional contributions determination specifying the excess amount and any additional tax charge. You must include the excess amount in your tax return for the current financial year, claim the 15% offset, and pay any extra tax by the due date.
Options for Managing Excess Contributions
Once you get the determination, you have two main ways to handle the excess amount:
Leave Excess in Super
You can choose to leave the excess concessional contributions in your super account. The ATO will reclassify this amount as non-concessional super contributions. This may count towards your non concessional contributions cap and trigger the bring forward rule, allowing up to three years of non-concessional caps to be combined in one year.
Impacts of Leaving Excess
Leaving the excess amount in your super account can have a couple of important consequences. First, the excess concessional contributions will be reclassified as non-concessional contributions, which may trigger the bring-forward rule under your non-concessional contributions cap. This means you could end up using up to three years’ worth of non-concessional caps in one go. Second, any investment earnings generated by the excess amount while it remains in your super fund may attract additional contributions tax when those earnings are realised or withdrawn.
Release Excess to the ATO
Alternatively, you can ask your fund to release up to 85% of the excess amount to the ATO to cover the tax and extra tax charge. The remaining balance is returned to you without further tax.
Steps to Release Excess
To initiate the release of excess concessional contributions, simply follow these three steps:
Your fund sends you a release authority form.
You complete and return the form within 60 days of the determination.
Your fund transfers the released funds to the ATO and refunds any surplus to you.
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Practical Tips to Avoid Exceeding Contribution Caps
Understanding contribution caps and planning can help you stay within limits:
Monitor Contributions Regularly
Keep track of employer contributions, salary sacrifice amounts, and personal contributions through your super fund statements and ATO online services.
Plan Timing Around 30 June
Ensure your pre-tax contributions arrive by 30 June to count in the intended financial year. Contributions received after this date apply to the next financial year.
Use Carry Forward Caps
If your total super balance was under $500,000 at the end of the previous financial year, use the carry forward rule to increase your concessional contribution cap for the current financial year.
Consolidate Multiple Funds
If you have more than one fund, consider consolidating to simplify tracking all contributions and avoid accidentally exceeding caps.
Conclusion
Exceeding the concessional contributions cap can result in a higher income tax liability, additional tax charges, and extra reporting with the ATO. By monitoring contributions throughout the financial year, using carry forward unused amounts, and planning carefully around 30 June, you can avoid excess contributions. If you do exceed the cap, you can choose to leave the excess amount in your super fund—triggering the bring forward rule on non-concessional contributions—or release most of the excess to the ATO to cover the tax and extra charge. Staying informed and proactive helps you make the most of pre-tax contributions while minimising additional tax costs.
