Payday Super and Excess Concessional Contributions Relief finally arrives

The Federal Government has introduced long-awaited legislation to address an unintended consequence of the now commenced Payday Super regime, providing relief for certain excess concessional contribution outcomes arising during the transition period.

The proposed measure is contained in the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (the Bill) and will be welcome news for employers, employees and advisers alike, particularly given industry concerns that the commencement of Payday Super could inadvertently result in some individuals exceeding their concessional contributions cap.

How the Payday Super transition created a contributions cap issue

Under Australia's superannuation contribution rules, concessional contributions generally count towards an individual's concessional contributions cap in the financial year in which the contribution is received by the superannuation fund.

With Payday Super now in place from 1 July 2026, employers are now required to make superannuation guarantee (SG) contributions much closer to the time employees are paid. However, transitional timing differences may have caused a problem for some employees.

Specifically, SG contributions relating to the June 2026 quarter that were paid in July 2026 could have been counted towards an employee's concessional contributions cap for the 2026-27 financial year. This would be in addition to the employee's ordinary SG and salary sacrifice contributions made throughout the remainder of the 2026-27 year.

For employees who are already close to their concessional contributions cap, these additional contributions could have resulted in excess concessional contributions assessments and associated tax consequences.

Eligible June quarter contributions to be excluded from the cap

The Bill introduces a targeted concession whereby certain concessional contributions relating to the June 2026 quarter that are paid in July 2026 will be disregarded when calculating concessional contributions for the 2026-27 income year.

The measure is intended to ensure that employees are not adversely impacted solely because of the transition to Payday Super and the interaction between existing contribution timing rules and the new payment requirements.

Importantly, the exclusion is narrowly targeted and only applies in specific circumstances relating to the transition period.

Why this matters

The announcement provides certainty for employers and employees, albeit post the introduction of Payday Super. Without this relief, some employees could have been exposed to excess concessional contribution liabilities through no fault of their own, particularly where employer contributions relating to the final quarter of 2025-26 were received by superannuation funds shortly after 30 June 2026.

The proposed amendment demonstrates The Government's recognition of the unintended consequences that can arise when major superannuation reforms intersect with existing contribution cap rules.

What this means for employers

Now that Payday Super has commenced, employers should be aware of the transitional relief and be prepared to respond to employee queries regarding the treatment of June 2026 quarter contributions paid in July 2026.

Importantly, the Bill does not increase the concessional contributions cap to account for the transition to Payday Super. During consultation on the reforms, it was widely suggested that the cap should be temporarily uplifted to reflect the potential for an additional quarter of employer contributions to be counted during the transition period. Instead, The Government has adopted a more targeted approach by excluding eligible June 2026 quarter contributions paid in July 2026 from an individual's 2026-27 concessional contributions calculation.

This means the ordinary concessional contributions cap continues to apply. The concessional contributions cap for the 2026-27 income year is $32,500, reflecting the legislated indexation mechanism linked to changes in Average Weekly Ordinary Time Earnings (AWOTE). While the increase from the previous year's cap provides additional capacity for contributions, it is not a specific Payday Super transition measure.

Employees with salary sacrifice arrangements, large employer contributions or other concessional contributions should nevertheless review their contribution position and consider seeking professional advice where there is a risk of exceeding their available cap.

How BDO can help?

BDO is across the practical implications that Payday Super can have on concessional contributions caps, including the transitional issues addressed by this Bill. If you have any questions or would like assistance understanding how the changes may affect your organisation or employees, please reach out to your local BDO employment tax specialist.