Tax Treatment of Medical Expenses 2015

May 28, 2015

~bDISCLAIMER:~
Please note: the information in this publication should not be used as a basis for action without further professional advice. ~

~bTHEN~
Prior to 1 March 2012, taxpayers were entitled to reduce their taxable income where they had paid contributions to a medical aid scheme and, if they had paid qualifying medical expenditure. Depending on the age of the taxpayer and whether the taxpayer paid any prescribed expenses in respect of a disability suffered by the taxpayer or his/her dependent, the deduction the taxpayer was entitled to reduce his/her taxable income with the full amount paid in respect of qualifying medical expenditure.

From 1 March 2013, South African Revenue Service (SARS) introduced the concept of a rebate, referred to as a ‘medical scheme fees tax credit’. Where a taxpayer paid contributions to a medical aid scheme, instead of receiving a reduction in their taxable income, they received a non-refundable tax rebate on a monthly basis that would effectively reduce their tax liability. A taxpayer was entitled to the benefit of this rebate over and above receiving a possible deduction from their taxable income (dependant on the amount of total qualifying medical expenditure).

~bNOW~
With effect from 1 March 2014, the treatment of qualifying medical aid expenditure for purposes of obtaining tax relief has been amended again and now takes the form of a rebate only. A taxpayer will now no longer be able to utilise their qualifying medical expenditure to reduce their taxable income.

Medical tax benefit will now be given in the form of two tax rebates, used to reduce the tax liability for that taxpayer, depending on their age and, whether they or a dependant suffer from a disability or contribute to a medical aid scheme. A taxpayer therefore only receives a tax benefit to the extent that they incur a liability for normal tax.

~bFIRST REBATE: MEDICAL SCHEME FEES TAX CREDIT~
This is a non-refundable rebate that a taxpayer qualifies for if they contribute to a medical aid scheme.

This rebate is applicable to all persons (under/over the age of 65), and is a credit that is calculated based on the number of dependants on the taxpayer’s medical aid (before 1 March 2014 this was only available to persons under the age of 65).

With effect from the 2015 tax year, the rebates are calculated as follows:

– The primary member and first dependent (per month) – R257 for 2015 and R270 for 2016
– Each additional dependent (per month) – R172 for 2015 and R181 for 2016

~bSECOND REBATE: ADDITIONAL MEDICAL EXPENSES TAX CREDIT~

This is a non-refundable rebate that a taxpayer will be eligible to utilise should they have paid qualifying medical expenditure over and above the contributions paid to a medical aid scheme. This rebate, referred to by SARS as the ‘additional medical expenses tax credit’, is calculated after the application of the first rebate (if any) and is applicable to persons of all ages irrespective of whether they contributed to a medical aid scheme or not.

Taxpayers over the age of 65 will no longer receive the benefit of utilising 100% of their medical expenditure to obtain a tax deduction.

With effect from the 2015 tax year the rebate will be calculated as follows:
– under 65 years of age not suffering from a disability:
– 25% of medical scheme contributions that exceed four (4) times the medical scheme tax credit as above PLUS
– 25% of any other qualifying medical expenses in excess of 7.5% of taxable income (excluding any retirement fund lump sum/ withdrawal benefit/ severance benefit)
– over 65 years of age OR under 65 years of age suffering from a disability:
– 33.3% of medical scheme contributions that exceed three (3) times the medical scheme tax credit as above PLUS
– 33.3% of any other qualifying medical expenses (excluding any retirement fund lump sum/withdrawal benefit/ severance benefit)

SARS is also being vigilant with their verification of medical expenditure on submission of income tax returns. Should you wish to utilise the second medical rebate, ensure you have a copy of proof of payment, for example, a receipt issued in your name, in support of the payment of such qualifying medical expenditure. Should you not be able to produce such a receipt confirming you made the payment, SARS may disallow the expenditure reducing your rebate, and leaving the door open for the imposition of penalties.

With the third change to the treatment of tax benefits in three years, it can get confusing. Speak to your tax advisor to ensure you meet SARS requirements.

Detailed information availablel at ~uwww.mazars.co.za#www.mazars.co.za~

~bDISCLAIMER:~
Please note: the information in this publication should not be used as a basis for action without further professional advice. ~

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