Medical expense relief discussed

June 20, 2011

CAPE TOWN — The Treasury has started consultation on changing the tax treatment of out-of-pocket and catastrophic medical expenses .

It released a discussion document outlining three options for a tax credit system for medical aid contributions to be introduced by March next year, and called for submissions to be made before October 31 .

The proposal to replace tax deductions for medical aid contributions and a portion of out-ofpocket expenses with a system of non-refundable tax credits forms part of the Taxation Laws Amendment Bill released this month .

This change will cost the fiscus about R1bn extra in 2008 -09 terms, but is more equitable towards low- income earners .

The question posed by the Treasury in a document released on Friday is how to subject catastrophic and out-of-pocket medical expenses to a tax credit system . The motivation would be to provide tax relief in the event of large medical outlays that could not be met from disposable income without hardship.

Currently, tax deductions are provided for significant expenditure for catastrophic medical expenses only if these exceed 7,5% of taxable income. T his limit does not apply to those 65 years and older , or to the disabled. However, the Treasury said it did not want a dual system of tax credits and tax deductions.

“Preserving the current system for out-of-pocket medical expenses will not only introduce inconsistencies, but will mean that the South African Revenue Service will have to then administer a hybrid system involving both credits and deductions for medical expenditure. For this and other reasons, this hybrid system is not preferred,” it said.

ensorl@bdfm.co.za

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