Medical expenses claim for individuals
As you are aware, 2019 tax season opened on 1 July for those who use efiling and 1 August for non-provisional individuals.
Closing dates are as follows:
• Branch filing closes on 31 October 2019
• eFiling closes on 4 December 2019
• Provisional taxpayers have until 31 January 2020 to file via eFiling.
For more information on tax season 2019 for individuals, check out SARS’ website at https://www.sars.gov.za/TaxTypes/PIT/Tax-Season/Pages/default.aspx. Today’s focus, however, is on medical expenses and what portion to include in your tax return as a claim and what not. I had a call the other day from a client saying his wife was at the hair dresser where she overheard somebody saying that if one is over the age of 65, all medical expenses can be claimed, regardless of the nature of it. According to the person making the statement, one could claim for general day-to-day expenses like head ache pills, flue medicines, vitamins etc. This is not true! The new rules for medical aid contributions and expenses that can be used as a claim in your tax return are complex. We recommend you contact us for advice on your specific circumstances.
Contributions paid by the taxpayer
Only qualifying contributions which were paid to a registered medical scheme (and that can be proven to have been paid by a taxpayer either directly or indirectly), will be taken into account in determining the Medical Tax Credit that the taxpayer will be entitled to claim.
The taxpayer claiming the contributions must be able to prove that he or she actually paid the contributions.
Qualifying contributions paid by a person other than the taxpayer will not be taken into account when the Medical Tax Credit is determined, except for –
- Qualifying contributions paid by the estate of a deceased taxpayer for the period up to the date of the taxpayer’s death. These costs are deemed to have been paid by the taxpayer on the day before his or her death; and
- Qualifying contributions paid by an employer of a taxpayer, to the extent that the amount has been included in the income of the taxpayer as a taxable benefit.
Qualifying contributions
Contributions paid by the taxpayer for him- or herself, and any dependant (as defined in the Medical Schemes Act), to a medical scheme registered under the Medical Schemes Act, may be taken into account when the Medical Tax Credit is determined. Contributions paid by the taxpayer to any other fund registered under similar provisions in the laws of any other country, may also be taken into account. Certain medical-related arrangements or products are marketed by entities that are not regulated by the Medical Schemes Act, for example, long-term insurers. These products do not qualify for a Medical Tax Credit in South Africa; similarly if a foreign product is marketed by an entity that is not regulated under legislation that is similar to the Medical Schemes Act, it will not quality for a Medical Tax Credit. A South African employer that makes contributions to a foreign medical scheme in respect of an employee has the obligation to determine whether the legislation which governs such foreign scheme is similar to the provisions of the Medical Schemes Act and whether such contributions will therefore qualify for a Medical Tax Credit. Contributions made by a taxpayer to any registered medical scheme in respect of him- or herself and any dependant will be a qualifying contribution. It is not a requirement that the taxpayer’s spouse or dependant, for example, be admitted as a dependant on the taxpayer’s medical scheme in order for the taxpayer to qualify for a Medical Tax Credit. The requirement is that the taxpayer’s spouse or dependant merely be admitted on any registered medical scheme.
Qualifying medical expenses
Expenses paid by a taxpayer during the year of assessment to any duly registered –
(i) medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor, or orthopaedist for professional services rendered or medicines supplied to the person or any dependant of the person;
(ii) nursing home or hospital or any duly registered or enrolled nurse, midwife or nursing assistant (or to any nursing agency in respect of services of such nurse, midwife or nursing assistant) in respect of the illness or confinement of the person or any dependant of the person; or
(iii) pharmacist for medicines supplied on the prescription of any person mentioned in subparagraph (i) for the person or any dependant of the person, will be taken into account in determining the Additional Medical Tax Credit, provided these expenses have been paid for the taxpayer or any dependant of the taxpayer.
In order for the expenses to qualify for the Additional Medical Tax Credit, the expenses must not have been recoverable by the taxpayer from any person, for example, from the taxpayer’s medical scheme or an insurer under a medical gap cover insurance plan.
Amount of additional medical expenses tax credit to be deducted from tax due
The calculation of the ADDITIONAL MEDICAL TAX CREDIT to which a person is entitled, is determined based on the following categories:
• Taxpayers aged 65 years and older
• Taxpayers with a disability
• Taxpayers under the age of 65
Taxpayers aged 65 years and older
- 33,3% of the fees paid to a medical scheme or qualifying foreign fund as exceeds three times the amount of the MEDICAL TAX CREDIT to which that person is entitled; plus
- 33,3% of qualifying medical expenses paid (out-of-pocket expenses).
Taxpayers with a disability
Section 6B(3)(b) recognises, as qualifying medical expenditure, amounts (other than expenditure recoverable by the taxpayer or his or her spouse) necessarily incurred and paid by the taxpayer in consequence of a disability suffered by him or her, his or her spouse or his or her child. The following ADDITIONAL MEDICAL TAX CREDIT may be claimed in respect of qualifying medical expenditure paid during the year of assessment:
- 33,3% of the fees paid to a medical scheme or qualifying foreign fund as exceeds three times the amount of the MEDICAL TAX CREDIT37 to which that person is entitled; plus
- 33,3% of qualifying medical expenses 38 paid (out-of-pocket expenses).
To simplify this calculation, the following formula can be used: 33,3% × {[A – (3 × B)] + C} in which formula—
– “A” represents fees paid to a medical scheme or qualifying foreign fund for the year of assessment;
– B” represents the MEDICAL TAX CREDIT for the year of assessment; and
– “C” represents all qualifying medical expenses paid during the year of assessment, including disability expenditure.
Taxpayers under the age of 65
Without a Disability. In addition to the MEDICAL TAX CREDIT, a taxpayer who is under 65 years of age will be entitled to an ADDITIONAL MEDICAL TAX CREDIT that is limited to 25% of the amount by which the sum of the amounts listed below exceeds 7,5% of the taxable income (excluding retirement fund lump sum benefits, retirement fund lump sum withdrawal benefits, and severance benefits) before taking into account this ADDITIONAL MEDICAL TAX CREDIT:
(i) All contributions made by the taxpayer to a registered medical scheme (in respect of the taxpayer, his or her spouse and any dependant) that exceeds four times the MEDICAL TAX CREDIT; and
(ii) Actual qualifying medical expenses (including physical impairment expenses) paid by the taxpayer and not recoverable from the medical scheme in respect of the taxpayer, his or her spouse or child and any dependant.
In (ii) above, the following expenses must be taken into account in the determination of the ADDITIONAL MEDICAL TAX CREDIT:
• All qualifying out-of-pocket medical expenses relating to services and prescribed supplies; and
• Expenses relating to a physical impairment (if applicable).
To simplify this calculation, the following formula can be used:
25% × {[A – (4 × B)] + C] – (7,5% × D)}
in which formula—
“A” represents fees paid to a medical scheme or fund for the year of assessment;
“B” represents the MEDICAL TAX CREDIT for the year of assessment;
“C” represents all qualifying medical expenses paid during the year of assessment; and
“D” represents taxable income (excluding any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance benefit).