Deputy commissioner for taxation, Neil Olesen, effectively gave a timely warning last week about the potentially high cost of overshooting the superannuation contribution caps.

While giving evidence to the Senate Economics Legislation Committee, he disclosed that the tax office had collected more than $400 million in excess contributions tax between July 2006 and early May 2010 from 40,000 assessments.

Just consider that when tax commissioner, Michael D'Ascenzo, and Neil Olesen last gave evidence to the same committee in February, the ATO had collected $100 million from 15,000 assessments issued at that point.

No doubt, many fund members - particularly those saving as hard as possible in their countdown to retirement - will take these revelations as a warning to really watch their contribution levels as the financial year draws to a close.

And the updated figures may serve as a particularly pertinent warning sign given that the standard concessional contributions cap for members over 50 with $500,000-plus in super will halve to an indexed $25,000 from July next year.

Consider the year-on-year tax collections for excess contributions since the concessional and non-concessional caps were announced in the 2006 Federal Budget:

  • 2006-07, $53 million in tax. Between May 10, 2006 (Budget night) and June 30, 2007, members could make non-concessional contributions of up to $1 million without exceeding this transitional cap.
  • 2007-08, $178 million in tax.
  • 2008-09, $163 million in tax.
  • 2009-10, $6.4 million in tax to the beginning of May. This is the figure to closely watch. Indeed, the deputy commissioner appeared to suggest in his evidence to the Senate committee that the final figure for the whole financial year could be higher than for the previous year).

In 2009-10, of course, the concessional cap was first halved to $50,000 for members over 50 and to $25,000 for members under 50.

And the next big crunch time for excess contributions is likely to be from July next year when concessional caps are halved again for many members over 50.

Watch this space.