Illustration: Colin Daniel

THE government is proposing to close a loophole in the medical tax credits you receive when claiming tax deductions for medical expenses. 

The medical tax credit system was introduced in 2011, replacing the system whereby qualifying medical expenses were deducted from your taxable income. The new system gives you credits (essentially rebates) for your medical scheme contributions and other medical expenses.

For the 2018/19 tax year, if you are younger than 65 and not disabled and have no disabled dependants, you may claim tax credits for your medical scheme contributions as follows:

  • R310 a month if the contributions are for you only;
  • R620 a month if the contributions are for you, plus one dependant; with 
  • R209 for each additional dependant.

“If you contributed to a medical scheme and shared the medical scheme contributions for your mother on a proportional basis with your sister, for example, you would be entitled to claim a tax credit of R620 a month,” says Shohana Mohan, a member of the employees tax committee of the South African Institute of Chartered Accountants.  

“However, your sister would also be in a position to claim for her proportionate contribution towards her mother’s medical scheme. This would result in a tax credit of R620 being claimed by both you and your sister in respect of the contributions you make toward your mother’s medical scheme.” 

To address this “tax leakage”, the Draft Taxation Laws Amendment Bill, which was issued last month, proposes the following amendment:  

  • R310, in respect of benefits to the taxpayer, or if the taxpayer is not a member of a medical scheme in respect of benefits to a dependant of the taxpayer who is a member of a medical scheme;
  • R620, in respect of benefits to the taxpayer and one dependant; or
  • R620, in respect of benefits to two dependants; and
  • R209, in respect of benefits to each additional dependant.

Mohan says the proposed legislation will result in a reduced credit for most taxpayers who contribute on a proportional basis to a medical scheme on behalf of a dependant.

He says: “The wording as proposed extends the ambit of the claim for a medical fees tax credit to situations where the taxpayer may not be a member of a medical scheme but may contribute on behalf of his or her dependant(s). In this regard, it is proposed that the definition of ‘dependant’ provides for situations where the person who makes the contributions to the medical scheme and the person on behalf of whom the contributions are made are not on the same medical scheme.”  

Mohan says that if the legislation is promulgated with effect from March 1, 2018, your income tax return for the tax year ending February 28, 2019 will require additional information.

“Taxpayers should ensure that they have the relevant information on hand with regard to the calculation of their share of the contributions they carry. This may include obtaining relevant supporting documentation where the proportionate share of the contribution is paid to a third party, such as a sibling who then on-pays the full contribution to the medical scheme, as opposed to paying the contribution directly to the medical scheme,” he says.