In South Africa, individuals are required to assess their personal income tax obligations annually. As part of this income tax calculation, taxpayers need to determine their medical scheme fees tax credit, also known as medical tax rebates. In the South African tax system, personal expenses are typically not considered when calculating an individual’s income tax liability. However, there is a significant exception when it comes to medical expenditure. In line with the practices of many other countries, South Africa provides tax relief for medical expenses incurred by individual taxpayers. This means that eligible medical costs can be deducted or offset against the taxpayer’s income, reducing their overall tax burden.
Tax systems provide relief for various reasons, and one of the key factors is the potential financial burden that serious injuries or illnesses can place on taxpayers. In such cases, medical bills can be exceptionally high compared to the individual’s income. In 2012, tax relief for medical expenditure was converted from a deduction system to a tax credit system. A tax credit system differs from a deduction system, in the sense that instead of permitting a deduction of the medical allowance against a taxpayer’s income, the relief is granted as a reduction in tax payable. Essentially it operates as a tax rebate.
The new tax relief consists of a two-tier credit system:
- A medical scheme fees tax credit that is applied in respect of qualifying contributions to a medical scheme also known as the Section 6A – medical scheme contributions tax credit.
- An additional medical expenses tax credit that is applied in respect of other qualifying medical expenses also known as Section 6B – additional medical expenses tax credit.
Taxpayers qualify to claim the Section 6A rebate (medical scheme contributions tax credit) in respect of contributions paid by them to a registered medical scheme. Consideration will only be given to medical scheme contributions paid by the taxpayer themselves, and their dependents may be taken into consideration in the determination of the medical scheme fees tax credit. The medical tax credit aims to bring considerable fairness, that will help achieve great equality in the treatment of medical expenses across all income groups. The medical tax credit is a fixed monthly amount, which increases according to the number of dependents.
According to SARS qualifying dependents include:
- A spouse, including same-sex partners
- A child, a child of a spouse, stepchild or adopted child who was alive during any part of the year of assessment
- A parent, sibling, parent-in-law, grandparent, or any other family member who relies on you for financial support
- Any other person recognised as a dependant by your medical scheme.
The 2023/2024 medical scheme fees tax credit rates are as follows:
- R364 per month for the taxpayer (the main member of the scheme)
- R364 per month for the first dependent on the scheme
- R246 per month for each additional dependent on the scheme.
The medical tax credit will have an impact on both the employer and the employee. The employer must consider this credit when calculating the amount of employees’ tax (PAYE) to be deducted or withheld from employees’ remuneration.
Section 6B rebate (additional medical expenses tax credit) refers to the sum of all the qualifying additional medical expenses, the medical expenses which are not covered by the taxpayer’s medical aid scheme.
There are specific medical expenses that meet the criteria of qualifying additional medical expenses. The following are examples that fall under that criterion:
- Consultations, medical services, and medications from a registered medical practitioner, dentist, orthopaedist, physiotherapist, optometrist, osteopath, chiropractor, herbalist, homoeopath, or naturopath.
- Admission to a registered hospital or nursing home.
- Home care by a registered nurse, nursing assistant, nursing agency, or midwife.
- Medicines prescribed by a duly registered physician and acquired from a duly registered pharmacist.
- Medical expenses incurred outside of South Africa, which are largely similar to the services and medicines listed above.
- Money paid towards the treatment of a physical impairment or disability, on condition that it is one of the qualifying expenses prescribed by the Commissioner.
Medication purchased over the counter (such as cough syrups, headache tablets, or vitamins) does not qualify as additional medical expenses unless the medication was specifically prescribed by a registered medical practitioner and was received from a pharmacist. The tax credits that are available are dependent on the taxpayer’s age, and whether he or she has a physical impairment or disability.
The South African Revenue Services allows taxpayers to take into consideration qualifying medical expenses that relate to physical impairment or disability in calculating the additional medical tax credit. The medical expenses will only qualify if they were necessarily incurred and paid by the taxpayer and were not covered by the taxpayer’s medical aid scheme.
The minimum requirement for an individual to be classified as having a qualifying disability is when the individual suffers from severe mental, physical, hearing, intellectual, communication, or vision disabilities. It must be kept in mind that an expense will not automatically be treated as a qualifying expense, the expense must be proven to be required because of the person’s inability to perform daily functions. Taxpayers are required to have the following information available when claiming for such expenditure:
- The details and nature of the physical disability or impairment.
- Evidence that the expenditure was because of the disability, and it was inevitable.
- A completed ITR-DD Confirmation of Diagnosis Disability form by a medical doctor.
- Proof of payment for treatments, consultations, and medication.
Medical tax credits serve as a legitimate means of reducing taxes through authorised processes and procedures. To claim these credits, taxpayers must adhere strictly to the specified rules and regulations mentioned above. By following these guidelines, individuals can rightfully benefit from the tax relief provided for medical expenses.
Written by: Phumelisa Mapinda
If you have any questions, please send an email to tax@finleys.co.za