Excess contributions tax is a penalty imposed when your super contributions exceed the concessional or non-concessional contribution caps. Each cap serves a purpose, but exceeding either can result in significant tax implications.
Here’s the bottom line:
- Concessional contributions cap: These are pre-tax contributions (employer contributions, salary sacrifice, or personal deductible contributions).
- Non-concessional contributions cap: These are after-tax contributions (funded directly from your personal savings).
Let’s explore what happens when you exceed these caps—and how to avoid the costly consequences.
Concessional Contributions Cap: The $30,000 Threshold
The general concessional contributions cap is $30,000 per financial year. However, if your super balance is under $500,000 as of 30 June, you can carry forward unused cap amounts from the previous five years.
What Happens If You Exceed the Cap?
- Notification from the ATO: The excess amount is added to your taxable income for the year.
- Tax Adjustment: You’ll receive a 15% tax offset to account for the contributions tax already paid.
- Withdraw Excess Contributions: You can opt to withdraw 85% of the excess amount to avoid further penalties.
Pro Tip: If you don’t withdraw the excess, it counts toward your non-concessional contributions cap—and the penalties can escalate quickly.
Non-Concessional Contributions Cap: The $120,000 Rule
The general non-concessional contributions cap is $120,000 per financial year. However, you can trigger the bring-forward rule to contribute up to $360,000 over a three-year period.
What Happens If You Exceed the Cap?
- ATO Notification: You’ll have the option to withdraw the excess contributions or leave them in your super.
- Tax Penalty: If you leave the excess in super, it’s taxed at a whopping 47%, in addition to the income tax you’ve already paid—resulting in an effective tax rate of up to 94%!
How to Avoid Excess Contributions Tax
- Track Your Contributions
Keep a close eye on your concessional and non-concessional contributions throughout the year to ensure you stay within the caps. - Understand Carry-Forward and Bring-Forward Rules
Leverage unused cap amounts from previous years or utilise the bring-forward rule to contribute larger sums strategically. - Opt to Withdraw Excess Contributions
If you exceed the cap, withdrawing the excess can help you avoid excess contributions tax altogether. - Check Your Super Balance Before Contributing
If your total superannuation balance exceeds $1.9M, you’re ineligible to make non-concessional contributions. - Consult a Financial Adviser
If you’re unsure about your contribution strategy, professional advice can save you thousands in unnecessary tax.
How to Optimise Your Super Contributions
Balancing your super contributions isn’t just about avoiding penalties—it’s about growing your wealth in the most tax-effective way possible.
- Maximise Concessional Contributions: These reduce your taxable income and grow your super in a low-tax environment.
- Strategically Use Non-Concessional Contributions: Ideal for larger, lump-sum investments once concessional caps are maximised.
- Plan Around Your Caps: Carry-forward and bring-forward rules give you flexibility to contribute more without exceeding limits.
Why Choose MW Group for Your Super Strategy?
We get it—super contributions and tax rules can be complex. At MW Group, we specialise in helping Australians maximise their super while staying compliant with contribution caps. Here’s how we help:
- Tailored strategies to optimise your super and minimise tax.
- Proactive advice to avoid penalties like excess contributions tax.
- Ongoing support to keep you on track with your financial goals.
Don’t Let Excess Contributions Tax Derail Your Retirement Plans
If you’re ready to grow your super without the risk of excess contributions tax, we’re here to help.
📞 Book your free strategy session now and discover how to maximise your super contributions while avoiding unnecessary penalties.
This is your retirement, and it’s worth doing right. Click here to get started today. Let’s build a future you can look forward to—with confidence, clarity, and control.
