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Tax deadlines and medical expenses - 01/07/2010

posted 3 Aug 2010, 01:22 by Carl Nielsen   [ updated 3 Aug 2010, 01:24 ]

The big news from SARS today is that Tax Season 2010 is open. This means
that individuals are now able to submit their tax returns. Deadline for
non-provisional taxpayers is 26 November 2010 and for provisional taxpayers
is 31 January 2011.

A new requirement announced has prompted me to briefly mention medical
expenses, one of the last few things that can help to reduce tax. One of the
great benefits of being poor has always been that you pay less tax. The good
news is that if you're poor and sick you're on an even better wicket.

Seriously, and with apologies for my crude sense of humor, medical expenses
are tax-deductible and especially for middle to lower income earners can
give tax savings.

How the tax deductions for medical expenses work is a bit complex, but let
me explain the basics: a portion of contributions to a medical aid fund
(calculated based on a per month rand value based on the number of
beneficiaries covered by your medical aid) is tax deductible (or a tax-free
fringe benefit if your employer pays it for you). The rest of your medical
aid contributions, together with you medical expenses are deductible to the
extent that they exceed 7.5% of your taxable income: sort of like an excess
system. So, keep a record of your expenses if they start to add up. The
deductible ones are basically:
 - doctor and doctor-ish consultation and service fees and
 - prescribed medicines.

If your medical aid covers any of the costs, even out of your medical
savings, those aren't deductible (the good news regarding medical savings is
that your contributions to the medical savings are treated the same as
medical aid premiums).

If you are over 65, the 7.5% excess falls away. So all your medical expenses
are deductible.

If you are handicapped or have a handicapped member of your family, you also
don't worry about the 7.5%. This is the bit that has changed this year:
well, not a change in the law, just that SARS wants everyone in this boat to
re-register by filling in a form which their doctor also needs to sign. I've
popped the form on my website (www.dfs.co.za) if anyone needs it.

Note that you can claim for all medical expenses that you pay, even if not
for you. So, generally it makes sense in a family for one person to be the
designated-medical-expense-payer. The person with the higher income stands
to gain a higher benefit due to saving tax at a higher rate, whereas the
person earning less will start saving earlier due to the 7.5% threshold. So
you might want to do some sums to decide whose money it actually was that
went to pay the doc. If you're over 65 or have a handicapped family member:
definitely best for the higher earner to pay things.