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The following article was issued by Bonitas Medical Fund - 22 February 2019

Private medical aid members can breathe a sigh of relief after the budget speech. Treasury has been hinting for a while that they were considering reducing the medical tax credit to fund the National Health Insurance (NHI). Fortunately, it remains unchanged for the year ahead.

Although it is a relief to your clients, it is also a surprise tax sacrifice, considering the need to fund NHI. This equates to over R30 billion this year and around R35/36 billion for the coming year - a large sum indeed.

It is believed the removal of tax credits would have upset too many people who are dependent on it to access private healthcare and are essentially being rewarded for not burdening the government healthcare.

Before 2012, SARS deducted medical aid contributions against taxable income. Originally medical aid contributions would be a deduction against taxable income. However, from 2012 SARS introduced a medical credit, a ‘tax credit’, which is deducted from your clients overall tax liability and it consists of the following two amounts:

The medical scheme fees tax credit

This applies to premiums paid by your clients to a registered medical scheme on behalf of themselves and their dependants.

  • The main member, as well as the first dependant on the medical scheme, receives a monthly tax credit of R310 (for the 2018-2019 year).
  • All additional dependants receive a monthly tax credit of R209 (for the 2018-2019 tax year).

There are three categories:

  1. Under 65 (without disability)
    25% of total contributions paid to the medical scheme
    Less (4X medical scheme fees credit)
    Plus qualifying medical expenses paid less 7.5% of taxable income
  2. Under 65 (with disability)
    33.3% of total contributions paid to the medical scheme
    Less (3X medical scheme fees credit)
    Plus qualifying medical expenses paid
  3. 65 or over (with or without disability)
    33.3% of total contributions paid to the medical scheme
    Less (3X medical scheme fees credit)
    Plus qualifying medical expenses

It is important to note that if the premium is deducted from your client’s salary or wages, their employer is obliged to use the credit system to adjust their monthly PAYE tax accordingly. If the contribution to a medical scheme is done independently from the employer, your client will receive the tax credit on assessment when they complete their tax return.

The additional medical expenses tax credit

This means the overall amount of tax that must be paid at the end of the tax year is reduced. The tax rebate amount is made up of a percentage of all out-of-pocket expenses spent on qualifying medical expenses that aren’t covered by the medical scheme. This amount accumulates throughout the tax year. Your client will need to keep the receipts for these expenses. To calculate the additional medical expenses tax credit, special formulas are used. The specific formula to use depends on age and whether one or more of your client’s dependants has a disability.

The following out-of-pocket expenses qualify:

  • Consultations, services or medications from a registered medical practitioner, arthropod, physiotherapist, dentist, chiropractor, herbalist, homeopath, optometrist, osteopath or naturopath
  • Admission to a registered hospital including nursing homes
  • Care at the patient’s home by a registered nurse, nursing assistant, nursing agency or midwife
  • Medicines prescribed by a duly registered physician (as listed above) and acquired from a duly registered pharmacist
  • Medical expenses on services rendered or medicines supplied outside of South Africa and which are substantially similar to the services and medicines listed above
  • Money paid towards treatment of a physical impairment or disability (as long as it is a qualifying expense prescribed by the Commissioner).

What about over-the-counter expenses
It is important to note that unless these are prescribed by a registered medical practitioner and acquired by a pharmacist they don’t enjoy a tax rebate. Examples include medicines such as cough syrups, headache tablets or vitamins.

Whether NHI is going to materialise or not, the government’s coffers need filling and approximately 17% of the South African population on private healthcare should expect their medical aid tax relief to get less in future.

Kind regards
Bonitas Medical Fund



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