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Although it was a relief to members it was also a surprise tax sacrifice, considering the need to fund NHI. This equates to over R30 billion this year and around R35/36 billion for the coming year - a large sum indeed.
It is believed the removal of tax credits would have upset too many people who are dependent on it to access private health care and are essentially being rewarded for not burdening the government health care.
Before 2012, SARS deducted your medical aid contributions against your taxable income. ‘Originally,’ says Gerhard Van Emmenis, Principal Officer of Bonitas Medical Fund, ‘your medical aid contributions would be a deduction against your taxable income. However, from 2012, SARS introduced a medical credit, a ‘tax credit’ which is deducted from your overall tax liability.’ The medical tax credit consists of the following two amounts:
This applies to the premiums paid by you to a registered medical scheme on behalf of yourself and your dependants.
There are three categories:
1. Under 65 (without disability)
25% of total contributions paid to the medical scheme
Less (4X medical scheme fees credit)
Plus qualifying medical expenses paid less 7.5% of taxable income
2. Under 65 (with disability)
33.3% of total contributions paid to the medical scheme
Less (3X medical scheme fees credit)
Plus qualifying medical expenses paid
3. 65 or over (with or without disability)
33.3% of total contributions paid to the medical scheme
Less (3X medical scheme fees credit)
Plus qualifying medical expenses
It is important to note that if your premium is a deduction from your salary or wages, your employer is obliged to use the credit system to adjust your monthly PAYE tax accordingly. If you contribute to a medical scheme independently from your employer, you will receive the tax credit on assessment when you complete your tax return.
This means that the overall amount of tax you need to pay at the end of the tax year is reduced. The amount of your tax rebate is made up of a percentage all out-of-pocket expenses you have spent on qualifying medical expenses that weren’t covered by your medical scheme. This amount accumulates throughout the tax year. You will need to keep the slips for these expenses. To calculate the additional medical expenses tax credit, special formulas are used. The specific formula to use depends on your age and whether you or one or more of your dependants has a disability.
The following out-of-pocket expenses qualify:
What about over-the-counter expenses
It is important to note that unless these are prescribed by a registered medical practitioner and acquired by a pharmacist they don’t enjoy a tax rebate. Examples include medicines, such as cough syrups, headache tablets or vitamins.
‘Whether NHI is going to materialise or not’, says Van Emmenis, ‘The Government’s coffers need filling and the approximately 17% of the South African population on private medical should expect their medical aid tax relief to get less and less in the future.’