Excess Super Contributions: A Costly Lesson From a Recent AAT Case
A recent Administrative Appeals Tribunal case (BVZH and FCT [2024] AATA 3618) highlights the importance of obtaining professional tax and financial planning advice before making large superannuation contributions.
In this case, a highly qualified solicitor made a $100,000 personal contribution to super using after-tax money. The ATO determined the contribution was excessive, resulting in a tax bill of approximately $47,000, despite the solicitor’s objections. This outcome arose from a misunderstanding of the superannuation contribution rules, particularly how an individual’s total superannuation balance is measured for contribution purposes. No financial or tax advice had been sought prior to making the contribution.
Although the case focused on the solicitor’s legal challenge to the outcome, the Tribunal ultimately upheld the ATO’s position, leaving the solicitor liable for the excess contributions tax. While some of the rules are explained below, this case reinforces how complex superannuation contributions can be and why tailored advice is essential before making large contributions.
Understanding Non-Concessional Contributions
This article focuses on non-concessional contributions (NCCs). These are personal super contributions made using after-tax money where no tax deduction is claimed.
There is a limit on how much you can contribute as NCCs in a financial year. If you exceed your personal NCC cap, the ATO will issue an excess non-concessional contributions notice.
Tax Consequences of Excess NCCs
If the excess contribution is not withdrawn within 60 days of the notice being issued, the excess amount is taxed at 47%. This can result in a significant and unexpected tax liability.
How Your NCC Cap Is Determined
Your NCC limit, also referred to as your contributions cap, depends on your total superannuation balance. Broadly, this is the combined value of all your superannuation and retirement phase accounts as at 30 June of the previous financial year.
You can check your total superannuation balance in your ATO online account via myGov.
The Critical Timing Rule
The key issue in the AAT case, and one that often catches people out, is that your total superannuation balance as at 30 June determines your NCC cap for the entire following financial year. This applies regardless of how your super balance changes during that year.
For example:
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If your total superannuation balance is $1.9 million or more on 30 June 2024, your NCC cap for the entire 2024–25 financial year is zero
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If your balance is less than $1.9 million on 30 June 2024, your NCC cap for 2024–25 is generally $120,000
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Some individuals may be eligible to contribute $240,000 or $360,000 under the bring-forward rule if their balance is below $1.78 million on 30 June 2024 and they meet the relevant eligibility requirements
Bottom Line
Even highly qualified professionals can face substantial tax bills if superannuation contribution rules are misunderstood. Before making significant super contributions, it is essential to confirm your eligibility and applicable caps and to seek tailored tax and financial advice.
Doing so can help avoid costly mistakes and ensure your superannuation strategy aligns with both your long-term goals and current tax obligations.
Speak to one of our accountants if you have any questions about the changes in tax for 2024.
