Making sense of medical deductions
Last updated on 12th December, 2017 at 05:07 pm
Medical deductions on a tax return always seem somewhat confusing, perhaps even more so since the introduction of the Medical Scheme Fees Tax Credit in 2012. So what do you need to know to make sense of the medical expense deduction maze?
First, it is important to know that the introduction of the Medical Scheme Fees Tax Credit has effectively changed the medical aid and medical expense deduction system as we previously knew it.
The new, phased-in dispensation consists of a two-tier credit system:
- A medical scheme fees tax credit (MTC) which applies in respect of qualifying contributions to a medical scheme; and
- An additional medical expenses tax credit (AMTC), which applies in respect of other qualifying medical expenses.
What is MTC?
Put simply, MTC is a rebate which reduces the normal tax a person pays. In other words, where the deduction applicable before 2012 lowered a person’s taxable income, the current rebate/credit reduces his tax liability. This rebate is a fixed monthly amount which increases according to the number of dependants, it is non-refundable and cannot be carried over to the next year of assessment. The MTC amount is added to the primary tax rebate for taxpayers.
In terms of Section 6A of the Income Tax Act 58 of 1962, for each month of the tax year that the taxpayer (main member) belonged to a medical aid, he receives a tax credit of R286. For the first dependant (spouse) he will receive an extra R286 and for any additional dependants an extra R192 each. If, for example, the main member had to pay R5 000 tax for the year, he will now receive a certain tax credit for his medical aid contributions, which may be deducted from the R5 000.
While the annual rebate is a fixed amount for a particular period, this amount changes based on a formula in the Income Tax Act. The above example is for the 2016/2017 tax year. (Source: http://www.sars.gov.za/TaxTypes/PIT/Pages/Medical-Credits.aspx)
What is AMTC?
The MTC is, however, not the only possible tax credit. In terms of Section 6B of the Income Tax Act 58 of 1962, there is also a tax credit for additional medical expenses (AMTC), in other words, for all the qualifying medical expenses that were not paid by the medical aid in the relevant tax year (out-of-pocket expenses).
The application of the additional medical expense tax credit system falls into three categories:
- Taxpayers under 65 years of age
- Taxpayers aged 65 years and older
- Taxpayers with a disability
As consumers may find the calculation of AMTC rather complicated, it is advisable to carefully study the Guide on the Determination of Medical Tax Credits (Issue 7) which provides detailed information in this regard on the SARS website. Alternatively, the assistance of a SARS consultant may be obtained.
Your medical aid annually provides you with a tax certificate containing your relevant medical aid contributions for the tax year, number of members etc. You need to keep this certificate for audit purposes when a MTC or AMTC is claimed for a year of assessment.
In addition, you must obtain a statement from the medical aid indicating the total amount of claims submitted to the fund that were not refunded to you or paid by the scheme to the service provider.
You must also be able to provide SARS with a detailed list of amounts not submitted to, or recoverable from, your medical scheme, together with proof of such amounts incurred and paid.
- For a complete list of all the documentation you must have at hand in case of an SARS audit, visit sars.gov.za.
By Wilma de Bruin
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