The ATO will impose a penalty known as excess contributions tax if you exceed either the concessional or non-concessional caps in a given financial year. The penalty tax is imposed on the individual rather than the super fund, although the tax can be deducted from the individual’s super account.

First off let’s look at the two different ways of contributing to super.  Concessional  Contributions are those contributions made before tax; such as your employers SG and salary sacrifice.  Non concessional  contributions are made after tax i.e. if you contribute from your bank account without claiming a tax deduction.

The caps are as follows;

Concessional Contributions Cap

Is now $25,000 irrespective of age

Non Concessional Cap

$150,000 in a financial year or members under age 65 can bring forward 2 future years i.e 450,000

In this blog we will take a look at the implications if the caps are exceeded. 

For concessional contributions, every dollar that exceeds the cap will be taxed at 31.5%. This tax is in addition to the 15% contributions tax deducted by your super fund upon receipt of the contribution, thus the total tax will be 46.5 cents in every dollar you contribute that exceeds the cap.

Similarly, non-concessional contributions attract an excess tax of 46.5% where the cap is exceeded in a given financial year. However, as non-concessional contributions are made from after-tax income, your super fund will not deduct an additional contributions tax of 15%.

But it doesn’t stop here…

Consider a scenario where you have contributed the maximum amounts under both caps (a common scenario for those nearing retirement). Under the current rules, if you exceed your concessional cap, the excess amount is then added to your non-concessional cap. But as you have already taken full advantage of your non-concessional cap as well, this amount also becomes an excess contribution under your non-concessional cap. In simple terms, this means the excess amount will be subject to excess contributions tax under both caps which amounts to 93%!