There are limits on the amount individuals can contribute to superannuation each financial year that are concessionally taxed. Significant penalties apply to those exceeding those limits.

The Australian Taxation Office (ATO) estimated that over 65,000 individuals were expected to exceed the concessional contributions cap for the 2009/2010 financial year.

There are two types of superannuation contributions, concessional and non concessional and the limits are different for both types of contribution.

Concessional contributions include:
• The 9% compulsory super guarantee made by employers;
• Additional voluntary super contributions employers make;
• Salary sacrificed amounts; and
• Personal super contributions made by individuals for which a tax deduction is claimed.
The 2011–2012 concessional contributions cap is either:
• $25,000 for people under 50 years of age;
• $50,000 for people aged 50 years or over.
Non-concessional contributions include:
• Personal contributions made by individuals from their after tax income- this amount cannot be claimed as a personal super tax deduction;
• Contributions made by partners;
• Any contributions in excess of the concessional contribution cap.
The 2011–12 non-concessional contributions cap of $150,000 applies to all individuals.

Many are still unaware of how the excess contributions tax (ECT) operates. As a result, many are facing ECT, turning it into a major source of revenue for the Federal Government. The average ECT liability for the 2009 financial year was around $40,000. Roughly a third of those facing ECT are members of a self-managed super fund.

The ATO uses information provided to them by superannuation funds and individual tax returns to determine whether an individual has exceeded their contributions cap. An individual that is assessed and required to pay excess non-concessional contributions tax must withdraw an amount equal to the amount of this tax from their super fund. This is in addition to the tax obligation.

Excess non-concessional contributions assessment applies where individuals are taxed at 46.5 per cent on excess non-concessional contributions.
Excess concessional contributions assessment applies where individuals are taxed at 31.5 per cent on excess concessional contributions, including employer contributions. This is as well as costs that employers pay, such as super administration fees and insurance premiums.
Any excess concessional contributions (which are already taxed at a rate of 31.5 percent) are counted as non-concessional contributions.

The ATO will receive applications to disregard or reallocate contributions. The ATO has received 225 applications to disregard or reallocate contributions relating to the 2009 financial year but only determined 111 applications as at May 2011.