Non-concessional contributions are contributions that are made to super from after-tax income or savings.

What are the non-concessional cap limits?

As of July 1st 2017, the non-concessional contributions cap allows members to make personal after tax contributions of up to $100,000 per year. The bring forward option allows members the ability to bring forward up to three years’ worth of contributions to a single year, which allows the member to contribute up to $300,000 in a single year. These rules apply to funds with a total balance under $1.4 million. The limits are different for funds over this amount, as shown in the table below.

Total Superannuation balance on 30 June 2017

Non-concessional contributions cap for the first year

Bring-forward period

Less than $1.4 million

$300,000

3 years

$1.4 million to less than $1.5 million

$200,000

2 years

$1.5 million to less than $1.6 million

$100,000

No bring forward period, general non-concessional contributions cap applies

$1.6 million or more

Nil

N/A

What happens if a member exceeds their non-concessional contributions cap?

If a member incorrectly exceeds the non-concessional cap, the fund is unable to repay the amounts over the cap back directly to the member.

The fund will need to lodge a tax return, showing the excess non-concessional contribution to the member. The ATO will then issue an excess non-concessional contribution notice. The notice will provide two options. The first option is to keep the excess in the fund, and 47% tax is charged on the excess. Or the second is the member elects to release the excess plus 85% of associated earnings from the fund.

The associated earnings is calculated by multiplying the excess non-concessional contribution by a General Interest Charge rate for each of the quarters of the financial year in which the excess was in the fund.

For the 2018-19 financial year, the average was 8.54%. This rate is adjusted quarterly and published on the ATO website.  Note the interest charge is calculated from the 1st of July in the year the contribution was made and ends the day the Commissioner issues the excess non-concessional contribution determination.

Associated earnings are taxed at the member’s marginal rate less a 15% offset.

The ATO will issue a release authority to draw the amount over the cap plus 85% of the associated earnings. The associated earnings are taxed at the member’s marginal rate less a 15% offset.

Tips and Traps

It is very important trustees do not pay back the excess amount prior to the release authority has been given by the ATO.  The refund amount plus charge does not need to be split between the tax-free and taxable component.  The fund could pay such payments from the taxable component, rather than the tax free member’s account.

There are exclusions such at the Capital gains tax cap, downsizer contributions or personal injury payments. If funds fall under one of these exceptions, they need to be specifically excluded by way of the required form.