The 2012 tax year has almost come and gone, and being annual budget time, anxious taxpayers are unsure what to expect. Is there any room to be taxed further? All will be revealed on Wednesday the 22nd, but in the meantime let’s focus on the new medical aid tax regime.
Gone are the days of paying your spouse’s medical aid and claiming the deduction just because you are in a higher tax bracket. From the 2013 tax year onwards that deduction is no longer allowed. Instead it will be replaced with a tax credit per dependent. “What is the difference?” I hear the average taxpayer ask, and “How does it affect me?”
A deduction is an amount/expense that you are allowed to subtract from the total income you earn to calculate your taxable income (a portion of which you pay to the tax man). Under the old tax regime, the more income you earned the greater your benefit would actually be – since the deduction was subtracted BEFORE calculating your taxable income calculation. The tax credit now is a single amount and is taken off AFTER you calculate your taxable income. So whatever tax you owe, you just subtract the credit. No more medical deduction proportional to your tax rate unfortunately.
Example (made up rates and numbers):
Ivan earns R60,000 and pays R4000 for his spouse Tohiera’s medical aid
Taxable income = 60000 – 4000 = 56000 x tax rate (40%) = R22,400 tax payable to SARS
Taxable income = 60000 = 60000 x tax rate (40%) = R24,000
Less: R1800 tax credit = R22,200 tax payable to SARS
Why is this happening? Well as we move closer to having a National Health Insurance, government has decided it is a good idea to equalise the medical system. The new credit makes it fairer to all – regardless of how much money you make – and you can always spend extra on private healthcare if you require it. The ultimate goal (and indeed a worthy one) is free basic healthcare for all!