Excerpts from the ~uMoneyweb.co.za article#www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page34677?oid=65831&sn=Detail&pid=1~
OMAC Actuaries & Consultants comment
As from 1 March 2012 a tax credit for contributions to medical schemes will be introduced for taxpayers younger than 65, at a rate of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries. Taxpayers 65 years and older and people with disabilities will be included in the second phase of this reform, which will be implemented in 2014.
According to Jan Howell, Consulting Actuary from OMAC Actuaries & Consultants, this announcement confirms the move from a system of tax deduction for contributions to medical schemes to a tax credit system. “Before, an individual could deduct a portion of their contribution to a medical scheme from their taxable income. This system clearly favours the wealthy as the higher the marginal tax rate and the medical scheme contribution, the higher the deduction. The new system introduced by Government has been done to create a more equitable system, which provides the same relief to everyone – hence the tax credit. Under the new system, individuals will be taxed on their full income, but will then receive a tax credit.”
Howell says the 2012 Budget Speech also changes the tax deduction allowed for out of pocket medical costs. “Out of pocket medical costs is still treated as a tax deduction until 2014, when this will also be converted to a tax credit. The amount of the deduction allowed equals the amount by which medical scheme contributions exceeds 4x the tax credit plus any out of pocket medical expenses, limited to the amount which exceeds 7.5% of taxable income.”
PwC on medical tax credits
As announced in last year’s budget, income tax deductions for medical scheme contributions for taxpayers below 65 years will be converted into such credits. Monthly tax credits will be increased from R216 to R230 for the first two beneficiaries and from R144 to R154for each additional beneficiary with effect from 1 March 2012.
It is enough of a struggle to have a handicapped child, particularly where that child requires significant medical support, well in excess of any normal level of expenditure. In the past, these costs have been fully tax deductible, which has made caring for the child more affordable. From 1 March 2014, expenses relating to a handicapped will no longer be deductible but to the extent that expenses exceed three times the total allowable tax credits will be converted to a tax credit of 33,3%. For a higher rate payer with medical costs of R100,000 per annum, the credit will be R16 740 as opposed to the tax value of the deduction of R40,000. This will come as a severe blow to those providing medical care to their handicapped loved ones and unfortunately may affect the quality of the care that can be afforded.