While contributions to medical aids are subject to credit relief, medical expenses in excess of 7.5 % of taxable income are claimed as a deduction.
On the other hand, taxpayers aged 65 years or older are on a deduction-only system.
From 1 March 2014, all taxpayers, regardless of age, will be on a credit-only system.
David Warneke of BDO SA explains what this means for taxpayers.
Currently contributions to medical aids or medical expenses by the taxpayer’s employer are a taxable fringe benefit in the hands of the employee.
The amount of the fringe benefit is treated as if it was a contribution or expense paid by the employee for purposes of the conversion to credits referred to below.
For taxpayers aged under 65 years without a disabled dependant:
Contributions to a medical aid (without regard to the quantum of the contribution) will qualify the taxpayer to receive a credit of a fixed monthly amount.
This will be based on the number of the taxpayer’s dependants on the medical aid scheme.
However, to the extent that the sum of qualifying medical expenses and medical aid contributions in excess of four times the fixed credit above exceeds 7.5% of the taxpayer’s taxable income, an additional credit arises.
This additional credit is calculated by multiplying the excess amount by 25%.
For taxpayers aged 65 years and older or for taxpayers with a disabled dependant:
Contribution to a medical aid (without regard to the quantum of the contribution) will qualify the taxpayer to receive a credit of fixed amount, based on the number of the taxpayer’s dependants on the medical aid scheme.
However, medical aid contributions in excess of three times the fixed credit amount above will be converted to additional credits at the rate of 33.3%.
Qualifying medical expenses (with no threshold requirement) will also be converted to credits at the rate of 33.3%.
For Pay As You Earn (Paye) purposes, the employer may only take the fixed monthly credit amount into account and not the additional credits.
Where the employer does not effect payment of the medical aid contributions, it may only take the fixed monthly credit amount into account if proof of payment of such contributions has been furnished.