Medical expenses are nothing to sneeze at. Private medical treatment is increasingly pushing the limits of medical aid scheme benefits and our wallets. It's an outlay few can avoid. Luckily, certain medical expenses come with a bit of tax relief in the way of tax credits.
A tax credit is a non-refundable rebate. This means that a portion of your qualifying expenses, in this case medical related spend, is converted to a tax credit, which is deducted from your overall tax liability (the amount of tax you have to pay SARS). You can't carry any unused credit over to the next tax year and it won't ever result in a negative amount or standalone refund from SARS. This means that if you don’t earn an income, but do contribute a medical aid, you can’t claim the medical credit.
Before we get into the actual numbers, though, it’s likely you’re not only paying for your own medical expenses but probably for those of your immediate and sometimes extended family too. For this reason, it’s important to understand what SARS considers as dependents.
Who SARS Considers as Dependents for Medical Expense Claims
A child and the child of a spouse (e.g. son, daughter, stepchild or children, adopted child or children) who was alive during any part of the year of assessment, and provided that on the last day of the year of assessment he / she was unmarried and:
a minor, i.e. under the age of 18, or
under 21 years of age, but partly or entirely dependent on you for maintenance and not yet liable for normal tax themselves, or
under 26 years of age, but partly or entirely dependent on you for maintenance, not yet liable to pay normal tax themselves and a full-time student at a publicly recognised educational institution such as a university or technikon
Any other member of your family who relies on you for family care and support (e.g. mother, father, sibling, mother or father-in-law, grandparent or grandchildren)
Any other person recognised as a dependent in terms of the rules of a medical scheme or fund
Tax Deductible Medical Expenses
Medical Aid Contributions
SARS calls this rebate the Medical Schemes Fees Tax Credit and it applies to the fees paid by a taxpayer to a registered medical scheme for you (as the taxpayer) and your dependants. The credit is a fixed monthly amount of R286 for you as the primary member, a further R286 for your first dependent and R192 for each of your additional dependents.
If John pays for medical aid for himself, his wife and his 3 children, his tax credit will be calculated as follows.
R286 for John + R286 for John's wife + (R192 x 3) for his 3 children = R1,148 tax credit per month
John's tax liability is therefore decreased by R1,148 per month. Note that this is a flat rate per month and doesn’t take your taxable income into consideration.
If you're paying your contributions via your employer, i.e. as a deduction from your salary or wages, your employer is obliged to use the credit system to adjust your PAYE tax accordingly. If not, completing the medical aid contributions section of your annual tax return will apply the permitted credit for your advantage.
Additional Medical Expenses Tax Credit
The Additional Medical Expenses Tax Credit is in place to provide some credit for excess medical expenses and comprises 2 parts:
Excess medical aid contributions, and
Out-of-pocket medical costs (i.e. those not reimbursed or claimed from medical aid)
Excess medical aid contributions are relatively straightforward to work out as you’ll use the total amount you paid towards medical aid as your base amount and then apply the formula applicable to your individual situation. We’ll get to this in just a moment.
Out-of-pocket expenses are a bit more complex. Out-of-pocket medical costs, as per SARS, are those expenses that you’ve paid for yourself, which have not been reimbursed from medical aid. (If you submit ALL your medical expenses to your medical aid, this amount is normally reflected on your tax certificate from the Medical Aid as 'claims not paid', 'amount not reimbursed' or something similar. Remember this won't include expenses you incurred but didn't submit to medical aid. You'll have to tally those up separately.) This doesn’t mean that you can include all and sundry from the pharmacy, though. SARS has certain restrictions on what qualifies as an out-of-pocket medical expense.
For professional services rendered and medicines supplied by a registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist to you or any of your dependant(s)
To a nursing home or hospital, or any duly registered or enrolled nurse, midwife or nursing assistant (or to any nursing agency in respect of the services of such a nurse, midwife or nursing assistant) in respect of the illness or confinement of the person or any dependant of the person
For medicines prescribed by a registered medical practitioner and acquired from a pharmacist
Medical expenses incurred and paid outside South Africa
It's important to note that “over the counter” medicines - such as cough syrups, headache tablets or vitamins don't qualify as medical expenses - unless specifically prescribed by a registered medical practitioner and acquired from a pharmacist.
Right, so now we know what qualifies as medical expenses you can claim back, let’s have a look at how you go about working out your additional medical expenses tax credit.
The formula you need to use depends on two factors:
Your age - whether you're older or younger than 65, and
A moderate to severe limitation of that person’s ability to function or perform daily activities, as a result of a physical, sensory, communication, intellectual or mental impairment if the limitation:
Has lasted or has a prognosis of lasting more than a year; and
Is diagnosed by a duly registered medical practitioner in accordance with the criteria prescribed by the Commissioner
In order to benefit from the full disability-related medical expenses provisions, you'll need to have an ITR-DD (confirmation of diagnosis of disability form for an individual taxpayer) form completed by a registered medical practitioner.
Let's look at a worked example - including the Medical Scheme Fees Credit - to show the different steps in the calculation.
Samson is 40 years old and pays R4,000 a month to a medical aid fund for himself, his wife and their 2 children. His youngest child had been quite ill throughout the year and by 29 February 2016, he'd paid R20,000 for medical treatments that had not been claimed back from his medical aid as his savings had run out. Samson's taxable income for the year was R250,000.
First, we need to work out what Samson's Medical Scheme Fees Credit is. Remember this is the flat rate of R286 each for him and his first dependent (his wife) plus R192 for each of his additional dependents (their children) so it's a fairly uncomplicated sum.
Annual medical scheme fees credit = Monthly credits x 12 [(R286 x 2) + (R192 x 2)]x 12 = [(R572) + (R384)] x 12 = R956 x 12 = R11,472
Now let's calculate the excess scheme fees by applying the formula for someone under 65 years old without a disability.
Excess scheme fees credit = Total contributions – (4 x medical schemes credit)
(R4,000 x 12) – (4 x R11,472) = R48,000 - R45,888 = R2,112
Total qualifying spend - (Taxable Income x 7,5%) R20,000 - (R250,000 x 7,5%) = R20,000 - R18,750 = R1,250
Step 3: Additional Medical Expenses
25% x (Excess Medical Scheme Fees + Qualifying Medical Expenses) 25% x (R2,112 + R1,250) = 25% x R3,362 = R840 (50c dropped for the sake of simplification)
Total Medical Expenses Tax Credit
Step 4: Total Medical Expenses Tax Credit to be applied
Medical Scheme Fees Tax Credit + Additional Medical Expenses Tax Credit = R11,472 + R840 = R12,312
All credit values and calculations are based on the 2016/2017 tax year, i.e. 1 March 2016 to 28 February 2017. If you're completing tax returns for other tax years different amounts, limits and conditions may apply.
Follow the above formulas to calculate your medical aid tax credit, or use our handy Medical Aid Tax Credit Calculator that will do it all for you in a matter of moments.