From 1 July 2026, Australia’s superannuation system will undergo a significant change with the introduction of Payday Super. Under this new system, employers will be required to pay Superannuation Guarantee (SG) contributions at the same time as salary and wages, rather than quarterly.
While this reform is designed to improve transparency and boost retirement savings, it may create a temporary issue during the transition some employees could unintentionally exceed their concessional contribution caps, particularly in the 2026 or 2027 financial years.
Although the government has indicated that measures will be introduced to prevent unfair outcomes, the final details are still pending. In the meantime, understanding how these changes may affect you is essential.
What Is Payday Super and Why Is It Changing?
Payday Super requires employers to deposit super contributions in real time with each pay cycle.
Why This Matters
- Improves visibility of super payments
- Reduces unpaid or delayed super
- Helps employees grow retirement savings faster
However, the shift from quarterly to per-pay contributions creates a timing mismatch during the transition period.
Why You Might Exceed Your Concessional Contribution Cap
A key detail many people overlook is this:
Super contributions count when they are paid into your fund—not when the income is earned.
The Transition Effect
During the move to Payday Super, some employees may receive:
- Contributions from the previous system (e.g. June quarter paid in July), plus
- Ongoing contributions under the new system
This can result in more than 12 months of contributions landing in a single financial year.
Who Is Most Affected?
- High-income earners
- Employees with salary sacrifice arrangements
- Those already close to their concessional contribution cap
Will You Pay More Tax If You Exceed the Cap?
In most cases, exceeding the concessional contribution cap does not result in a harsh tax penalty.
How Excess Contributions Are Taxed
If you go over the cap:
- The excess amount is added to your assessable income
- It is taxed at your marginal tax rate
- You receive a 15% tax offset (to account for tax already paid within super)
The Outcome
In practical terms, the excess is taxed similarly to your normal salary or wages so while not ideal, it’s usually not financially damaging.
What Happens If You Exceed the Contribution Cap?
If your contributions exceed the limit:
- Your super fund reports the contributions to the ATO
- The ATO assesses your position
Possible ATO Actions
- Excess Concessional Contributions Determination
- Notice of Assessment or Amended Assessment
If eligible, the ATO may automatically apply unused concessional cap amounts from the previous five years (carry-forward rules), provided your total super balance is below $500,000.
Your Options for Managing Excess Contributions
Option 1: Release the Excess from Super
- You can withdraw up to 85% of the excess via myGov
- The ATO applies this amount toward your tax liability
Option 2: Leave the Excess in Super
- Pay the additional tax personally
- The excess counts toward your non-concessional contribution cap
Important Consideration
If your total super balance exceeded $2 million at 30 June 2025, your non-concessional cap for 2026–27 is nil.
In this case, releasing the excess is generally the better option.
Real-Life Examples of Payday Super Impacts
Example 1: High-Income Earner
John earns $250,000 and receives $30,000 in SG contributions. When his employer transitions to Payday Super:
- He receives 13 months of contributions in one year
- Total contributions: $32,500
- Excess: $2,500
The ATO adds the excess to his income and applies a 15% offset.
Because his super balance exceeds $2 million, releasing up to 85% of the excess is typically the most effective strategy.
Example 2: Salary Sacrifice Employee
Sarah earns $100,000 and salary sacrifices to reach her concessional cap. When her employer switches from quarterly to Payday Super:
- Her contributions increase to $37,500
- This exceeds the cap
To avoid this, Sarah needs to adjust her salary sacrifice arrangement during the transition.
Key Strategies to Avoid Issues During the Transition
Review Your Contribution Levels Early
Don’t wait until the end of the financial year, monitor contributions as the transition begins.
Adjust Salary Sacrifice Arrangements
If you salary sacrifice, consider reducing contributions temporarily to stay within the cap.
Check Your Super Balance
This determines:
- Eligibility for carry-forward rules
- Whether non-concessional caps apply
Seek Professional Advice
If you are:
- Close to contribution caps
- A high-income earner
- Managing multiple income streams
Tailored advice can help you avoid unnecessary complications.
Conclusion: Stay Informed and Proactive
The introduction of Payday Super is a positive step for Australia’s retirement system, but like many reforms, the transition period may create temporary challenges.
While exceeding concessional contribution caps may sound concerning, the reality is that most outcomes are manageable and do not result in significant penalties. The key is awareness and early action particularly for those with salary sacrifice arrangements or higher incomes.
By reviewing your contributions, making timely adjustments, and seeking advice where needed, you can navigate these changes confidently and keep your long-term retirement strategy on track.
How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.
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