With the conclusion of the SMSF conference in Melbourne last week, it is timely to focus on a critical aspect of superannuation planning—an Excess Transfer. This issue is increasingly relevant for individuals managing their self-managed super funds (SMSFs) and can have significant implications for their financial future. A clear understanding of what is an Excess Transfer and its consequences is essential for effective superannuation management and to avoid ATO penalties.
What is an Excess Transfer?
An Excess Transfer occurs when an individual exceeds the allowable contribution limits set under the superannuation laws, modified by the government from time to time. These limits are designed to limit the amount of money (or assets) that can be transferred to a superannuation fund, which is taxed at a concessional tax rate (max 15%). Exceeding these limits can result in additional tax liabilities and penalties.
Contribution Caps
The government has established specific caps for concessional (tax deductible) and non-concessional (non tax deductible) contributions:
| Type of Contribution | Definition | Cap (per financial year) |
| Concessional Contributions | Pre-tax contributions, including employer contributions and salary sacrifice amounts. | $30,000 ( 2024/2025 FY) |
| Non-Concessional Contributions | After-tax contributions made by individuals. | $120,000 (with the ability to bring forward up to two years’ worth of contributions under certain conditions). |
Total superannuation balance Cap (TSB)
Since 2017, the government introduced a cap or limit on the maximum amount of money that can be contributed to a superannuation fund. The current limit in this financial year is $1.9 million per person (increasing to $2 million from the next financial year). This is measured as at 30 June in the previous year and is based on the value of all concessional or non-concessional contributions made and the earnings on those contributions. It includes all accumulation and retirement phase benefits held by an individual in all Australian superannuation funds. There are special rules that include or exclude certain benefits for amounts from the TSB. A similar cap also applies within the fund for the amount of money you can hold in a retirement phase pension, referred to as the “transfer balance Cap”.
Implications of Exceeding Contribution Cap
Exceeding the contribution caps can lead to several significant consequences:
- Excess Contributions Tax: Individuals who exceed their contribution limits may be subject to an excess contributions tax, which can be as high as 47% on the excess amount.
- Withdrawal of Excess Amounts: The ATO will allow an individual to withdraw excess contributions from their superannuation fund. For excess non concessional contributions, the ATO will require 85% of the associated earnings to be paid back, treated as assessable income of the individual plus a non refundable 15% tax offset. For excess concessional contribution, the excess is included in an individual’s assessable income less a 15% tax offset to account for the contributions tax already paid by the fund.
- Impact on Future Contributions: Exceeding contribution limits may restrict an individual’s ability to make future contributions until the excess is resolved, affecting their overall retirement strategy.
When an individual exceeds their TSB the ATO will send a release authority. Tax penalties will also apply when an individual exceeds their transfer balance Cap.
Strategies to Manage Excess Transfer
To avoid the pitfalls of Excess Transfer, individuals should consider the following strategies:
- Monitor Contributions: Regularly track contributions to ensure they remain within the allowable limits. This can be achieved through diligent record-keeping and the use of online superannuation calculators.
- Consult a Financial Advisor: Engaging with a financial advisor who specialises in superannuation can provide valuable insights and help develop a tailored strategy that aligns with individual financial goals.
- Utilise Carry-Forward Rules: For individuals with a total superannuation balance of less than $500,000, unused concessional contribution caps can be carried forward for up to five years. This provides greater flexibility in contribution planning and can help manage excess contributions.
Hill Legal’s Hot Take
Understanding an Excess Transfer and its implications is crucial for anyone involved in superannuation planning, particularly those managing SMSFs. By staying informed and proactive, individuals can navigate the complexities of superannuation contributions effectively and avoid unnecessary penalties.
As the superannuation rules around contributions and caps are complex and vary from time to time, it is important you obtain specialist SMSF advice. Our SMSF team at Hill Legal is here to help, and we regularly give advice to clients, accountants and fund auditors regarding superannuation contributions, and strategies, as well as advice on SMSF document and compliance issues. Contact us today on 03 5976 6500.
