End of medical tax deductions won’t hurt all pensioners

By Laura du Preez Taxpayers over the age of 65 who earn less than R400 000 a year may pay less tax as a result of the introduction of the medical tax credits system. Some pensioners are angrily accusing government of not caring about the plight of the elderly after it was highlighted in the Budget last week that over-65s will lose the tax deduction for medical scheme contributions and medical expenses in the 2014/15 tax year. But, depending on their contributions, expenses and family size, the scrapping of the tax deduction is bad news only for over-65s who earn more than about R400 000 a year, National Treasury says. Those who earn less should be better off.

Changes to tax treatment of medical expenses from 1 March – worked example

At present taxpayers aged under 65 years are on a hybrid system with regard to the income tax treatment of their medical expenses. 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. As is currently the case, contributions to medical aids or medical expenses by the taxpayer’s employer are a taxable fringe benefit in the hands of the employee but 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.

New tax treatment of medical expenses

Johannesburg – At present taxpayers aged under 65 years are on a hybrid system with regard to the income tax treatment of their medical expenses. 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.

What you should know about medical tax credits

Ingé Lamprecht   More changes to be introduced from 1 March. JOHANNESBURG – Over the past two years, the tax benefits individuals enjoy for medical aid contributions and expenses, have gradually changed from a deduction to a tax credit system. While the deductions for medical aid contributions have already been replaced with a medical credit system for most taxpayer categories, deductions for qualifying medical expenses will also be replaced with a credit system from March 1 this year.