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June 2008
Tax and medical aids
This is the last instalment in our series on medical aids. We hope the series has highlighted the main issues on this relevant topic, and most of all, shown that the medical aid industry in South Africa is dynamic and evolving.
Constant debate and discussion is underway as the role-players grapple with medical aids in what is essentially a complex country, one with an emerging economy, a widely divergent society in terms of race and income, and the added complication of Aids.
In mid-July, the Board of Healthcare Funders will hold a conference over three days that aims to examine and seek resolutions for a number of industry issues. At the end of August this year, the South African Medical Association will hold a conference entitled 'The Future of Healthcare in South Africa - How will it be provided and funded?' The fact that conferences like this are necessary is an indication of the complexity of the industry.
Tax legislation is the last issue we'll discuss. Like many other healthcare issues, it too has changed over time. Medical expenditure is one of those interesting areas when it comes to tax, as it is considered expenditure of a "domestic or personal nature", and such expenditure is usually not deductible for tax purposes.
However, South African Revenue Services (SARS) states that "an individual's ability to pay tax may well be adversely affected by costs incurred as a result of illness or disability and for this reason a certain degree of relief is provided by the South African tax system in respect of medical expenditure".
Section 18 of the Income Tax Act is dedicated to medical expenditure. It's a lengthy section, with several definitions and sub-sections, and we can't cover it fully here. The basic facts are that you can claim tax deductions on:
- Contributions paid to a registered medical scheme;
- Expenses paid for medical services and prescribed medical supplies which have not been recovered from a medical scheme; and
- Other expenditure incurred in consequence of any physical disability.
The medical allowance in respect of these expenses is, however, subject to certain limitations, which include:
- "Capping" of contributions.
- Limitation of -
- contributions that exceed the capped amounts; and
- qualifying medical and disability expenses, to an amount that exceeds 7.5% of the taxpayer's taxable income as determined before allowing any amount as a medical allowance.
It might sound quite complicated, but your tax consultant will help you with the necessary calculations, and if you don't have a tax consultant, SARS will assist you. The main point is that yes, tax relief is available for medical expenses, and this is good news. For a full explanation of tax laws on medical expenditure, visit the SARS website at www.sars.gov.za.
And finally….
In the previous issue we covered the Guardrisk saga, in which Guardrisk was taken to court because of its "top-up" products, designed to pay the gap between a medical scheme payout and the actual hospital bill. Since our previous issue, the Constitutional Court has ruled that the Registrar of Medical Schemes and the Council for Medical Schemes' appeal against Guardrisk's recent victory in the Supreme Court 'bears no prospects of success', and has dismissed the application.
This is an important victory for Guardrisk. It also brings us to the topic of short-term insurance (the Guardrisk "top-up" products are essentially short-term insurance).
The next couple of issues of Money Matters will be devoted to "Surviving the pinch - how to tighten your belt in the current economic climate", and one topic we'll be discussing in this regard is short-term insurance. You might be surprised to learn it can play a role in making your money last in tough times.
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