Excess Concessional Contributions & a $nil Non-Concessional Cap | Heffron

Making concessional contributions in excess of the cap isn’t a disaster. But special care is required for those whose non-concessional contributions cap is $nil (because, for example, their total super balance exceeds the general transfer balance cap). That’s because sometimes excess concessional contributions end up also being treated as non-concessional contributions. If the cap for these is $nil, one excess quickly becomes two – with additional tax consequences.

What happens when a member exceeds the concessional contributions cap?

For most people, the relevant cap is $30,000 in 2025/26 (increasing to $32,500 from 1 July 2026).

It’s entirely legal to have more than this amount contributed in a given year. This includes both employer contributions and personal contributions for which the individual claims a tax deduction.

If those contributions exceed the $30,000 concessional contributions cap, they are initially dealt with as follows:

• The total contribution amount will be reported to the ATO. For SMSFs, this is part of the fund’s annual return (let’s say the contributions occurred in 2025/26 and are included in the 2026 annual return).
• The ATO will determine that there is an excess (let’s say this amount is $5,000).
• The ATO will add the $5,000 to the individual’s 2025/26 assessable income and re-calculate their income tax for that year. Their new tax position will be calculated including this $5,000 and allowing for a 15% tax offset (to reflect the tax already paid by the super fund).
• The ATO will also advise the individual that they can elect to release up to 85% of the excess contributions (85% x $5,000 = $4,250) from their super fund. If this election is made, the ATO will send a release authority to the member’s nominated super fund to allow the money to be paid to the ATO (where it will eventually flow through to the member after any further income taxes or other ATO debts have been deducted).

If they choose not to release the excess, the full amount ($5,000) will count towards the individual’s non-concessional contributions cap (for 2025/26 in this example).

This is where things potentially get tricky. 

What if the member’s non-concessional contributions cap is $nil? 

This could happen for several reasons. Perhaps the member had more than $2m in super at 30 June 2025? Or perhaps their super balance was less but they’d already used up their whole cap for 2025/26  by using the “bring forward rules” in an earlier year?

Either way – they now have an amount to be counted towards their non-concessional contributions cap but that cap is $nil.

Does that mean it is illegal to create an excess in this way? Are individuals in this position forced to refund their excess concessional contributions?

In fact no. Providing they meet the usual super rules (for example, they are under 75), any individual in this position can still make non-concessional contributions. And unless there's some reason to reject the concessional contribution in the first place, anyone can have a non-concessional contribution created via an excess concessional contribution that is not refunded.

In this example, the $5,000 excess will be treated just like any other excess non-concessional contribution. It will trigger a determination from the ATO which sets out the excess ($5,000) plus an amount of “associated earnings” (effectively, interest on the excess). The interest applies from the beginning of the financial year in which the contribution was received (1 July 2025 in this case).  The individual then has some choices.

Choices if excess concessional contributions flow into a $nil non-concessional cap

Option 1: Release the excess and associated earnings

The amount to be taken out of super will be the excess of $5,000 plus 85% of the associated earnings. In this case, the individual will just pay extra income tax on 100% of the associated earnings (and will receive a 15% tax offset) in 2025/26, or

Option 2: Leave the excess in super and pay excess non-concessional contributions tax

In this case just the excess amount ($5,000) is taxed at 47%.

If the individual doesn’t make a choice or takes too long, the ATO will assume they want to take the excess non-concessional contributions out of super and will issue a release authority to the fund with the highest reported account balance.

Why releasing excess concessional contributions early is usually the best strategy

Anyone in this position should definitely choose the “release” option for their excess concessional contributions! In other words, make that choice right at the start rather than letting the excess flow through to also become an excess non-concessional contribution. This will:

• minimise the amount withdrawn from super (just 85% of the excess, ie $4,250 rather than the full excess plus associated earnings), and
• avoid additional taxes on either the associated earnings or the excess non-concessional contributions themselves.

As always, though:

• This will require action. At the point where an excess first occurs (ie, an excess concessional contribution), the ATO doesn’t assume the money should come out of super and default to issuing a release authority if they don’t hear otherwise. That only happens when it gets to being an excess non-concessional contribution.
• Nothing should be released from super until the individual receives the excess determination, proactively elects to have the money released from super and the release authority is actually received from the ATO. If any amounts are paid out earlier, they are effectively benefit payments – and could well be illegal.
• Any amounts released from super get paid to the ATO, not the individual’s personal bank account.

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