No more medical aid tax deductions.
Prior to March 2012, you were entitled to claim a deduction from your tax payable for any medical aid contributions you paid during the year. This system of ‘medical scheme contribution deduction’ was replaced with a new ‘medical scheme fees tax credit’ framework for all taxpayers under the age of 65.
Why the new medical scheme tax credit framework?
The main aim of this new tax framework is to promote the fair treatment of medical expenses across all income groups. Therefore regardless of your income bracket, you will benefit equally to any taxpayer with equivalent medical expenses.
How does the medical tax credit system work?
When using the old system, your medical aid contributions (capped amount), along with other contributions such as retirement, would be subtracted from your gross income to give you your taxable income. Your tax payable would then be subtracted from taxable income.
However with the new tax credit system, your medical aid contributions are no longer subtracted from your gross income alongside your other contributions. Instead, a tax credit amount is assigned to you depending on the number of dependents on your medical aid scheme. This credit amount is then subtracted from your tax payable.
Tax credits are set at fixed amounts per month. If you are a taxpayer under the age of 65, your tax credits for the year of 1 March 2013 to 28 February 2014 are calculated as:
For the taxpayer: R242 tax credit
For the first dependent: R242 tax credit
For each additional dependent: R162 tax credit
* These figures are a guide and may vary. It is also worth noting that medical scheme tax fees are not refundable.
Implementing medical aid tax credits
The information above gives you a brief overview of how the new system works but we recommend you talk to a tax consultant before applying this in your organisation or even your tax return. There are still deductions that can be made for out-of-pocket medical expenses and there is value to covering these with a professional.
If you are looking for a tax consultant for advice on the new tax credit system, call Brett on 021 421 4444.