Contribution caps are applied to limit the amount of money you can add to your super every financial year. If you contribute over the allocated amount, there may be tax implications.
There are different types of contributions you can make, most of which will be either classed as:
- concessional (before-tax) contributions
- non-concessional’(after-tax) contributions.
Contribution caps apply to both of these. Contribution caps are administered by the ATO, so if you have multiple super accounts, even with different super funds, any money you contribute to those accounts will count towards your individual contribution caps.
Concessional contribution cap
Any money that you add to your super before-tax including employer contributions, salary sacrifice and any money you claim a tax deduction on are considered concessional contributions.
The current concessional contribution cap from 1 July 2021 is $27,500.
Carry-forward unused concessional contributions
The government allows you to carry-forward unused amounts of your concessional contribution cap from the previous five financial years, starting with the 2018-19 year.
To be eligible to carry-forward from previous years and contribute more than $27,500 in concessional contributions in a single financial year your account balance must have been less than $500,000 at the start of the financial year you utilise the rule.
Depending on your individual circumstances, there may be other rules that should be considered prior to carrying forward unused concessional contributions.
Exceeding the concessional contribution cap
If you exceed the concessional contribution cap (and any available catch-up amount) the ATO will let you know. Any amount exceeding the concessional contribution cap will be taxed at your marginal tax rate (minus a 15% offset).
The ATO will allow you to rectify the issue by withdrawing up to 85% of the excess amount from your super. If you choose to do so, no further penalty will apply. If you do not take the withdrawal offer, the excess amount will also be assessed against your non-concessional cap. The consequences of this may vary depending on your circumstances.
Non-concessional contribution cap
Any funds that are contributed to your super account with after-tax money, such as additional contributions from your take-home pay that you don't claim a tax deduction on, are considered to be non-concessional contributions.
The current non-concessional cap, from 1 July 2021 is $110,000.
Individuals with total super balances of $1.9 million or over at the start of the relevant financial year are unable to contribute any non-concessional contributions to their account.
In certain circumstances, you may choose to ‘bring forward’ your contributions from future financial years if you wish to make non-concessional contributions in excess of $110,000 within a single financial year. This is often referred to as the ‘bring-forward rule’ and allows you to potentially contribute up to $330,000 within a single financial year. The bring-forward rule is subject to certain requirements, including:
You are under the age of 75*
Your ‘total super balance’ (i.e. the amount of super you hold across all of your super accounts) is less than certain thresholds at 30 June of the previous financial year.
You’re not currently within an already activated bring-forward period.
Depending on your circumstances there may a number of other rules that need to be considered prior to making additional contributions under the bring-forward rule. See a full list of the rules and eligibility criteria.
Exceeding the non-concessional contribution cap
If you exceed the non-concessional contribution cap the ATO will let you know. They will allow the excess amount to be withdrawn, (less taxes representing the earnings on the excess amount), taxed at your marginal rate, minus a 15% offset. If you decline to take this withdrawal offer, a further tax of 47% will apply to the entire excess amount.
See the ATO's website for further information on exceeding the non-concessional contribution cap, including calculations, tax implications, processes and examples.
* Individuals have 28 days from the day they turn 75 to make non-concessional (and other voluntary contributions), following that we are only able to accept Super Guarantee and Downsizer contributions. In addition to this, to use the bring forward rule you must have been under the age of 75 for at least one day in the financial year that you first trigger it.
Disclaimer: Information current as at 1 July 2023. It has been prepared on behalf of Mercer Superannuation (Australia) Limited (MSAL) ABN 79 004 717 533, Australian Financial Services Licence 235906, the trustee of Mercer Super Trust ABN 19 905 422 981. We recommend you seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of action to take. The value of an investment in the Mercer Super Trust may rise and fall from time to time. Neither MSAL nor Mercer (Australia) Pty Ltd (Mercer) guarantees the investment performance, earnings or return of capital invested in the Mercer Super Trust. Past performance should not be relied upon as an indicator of future performance. ‘MERCER’ and Mercer SmartPath are Australian registered trademarks of Mercer ABN 32 005 315 917. Copyright 2023 Mercer LLC. All rights reserved.