ARCHIVED Guide on the Determination of Medical Tax Credits (Issue 7)
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Income Tax ARCHIVED Guide on the Determination of Medical Tax Credits (Issue 7) Guide on the Determination of Medical Tax Credits Preface This guide provides general guidelines regarding the medical scheme fees tax credit and additional medical expenses tax credit for income tax purposes. It does not delve into the precise technical and legal detail that is often associated with tax, and should, therefore, not be used as a legal reference. This guide is not an “official publication” as defined in section 1 of the Tax Administration Act 28 of 2011 and accordingly does not create a practice generally prevailing under section 5 of that Act. It is also not a binding general ruling under section 89 of the Tax Administration Act. Should an advance tax ruling be required, visit the SARS website for details of the application procedure. This guide includes the amendments effected by section 5 of the Taxation Laws Amendment Act 25 of 2015 and section 8 of the Tax Administration Laws Amendment Act 23 of 2015, both promulgated 8 January 2016; and by section 5(1) of the Rates and Monetary Amounts and Amendment of Revenue Laws Act 13 of 2015, promulgated on 17 November 2015. As the year of assessment of an individual ends on the last day of February, these amendments apply to the years of assessment commencing on or after 1 March 2015 (that is, the 2016 year of assessment). All guides, interpretation notes, forms, returns and tables referred to in this guide are available on the SARS website. For additional information concerning any aspect of taxation you may – • visit the SARS website at www.sars.gov.za; • visit your nearest SARS branch; • contact your tax advisor or tax practitioner; • contact the SARS National Contact Centre – if calling locally, on 0800 00 7277; or if calling ARCHIVEDfrom abroad, on +27 11 602 2093 (only between 8am and 4pm South African time). Comments on this guide may be sent to [email protected]. Prepared by: Legal Counsel SOUTH AFRICAN REVENUE SERVICE Date of 1st issue : February 2007 Date of 2nd issue : February 2008 Date of 3rd issue : October 2011 Date of 4th issue : September 2013 Date of 5th issue : 14 November 2014 Date of 6th issue : 18 November 2015 Date of 7th issue : 30 June 2016 Guide on the Determination of Medical Tax Credits (Issue 7) i Contents Preface ................................................................................................................................... i Glossary ............................................................................................................................... 1 1. Background .............................................................................................................. 2 2. Part A – Section 6A rebate (medical scheme fees tax credit)................................ 3 2.1 Qualifying persons for whom contributions may be claimed ........................................ 3 2.1.1 Meaning of a “dependant”........................................................................................... 3 2.2 Person paying the contributions ................................................................................. 3 2.2.1 Contributions paid by the taxpayer ............................................................................. 3 2.2.2 Qualifying contributions .............................................................................................. 4 2.3 Medical scheme fees tax credit .................................................................................. 6 2.4 Amount of medical scheme fees tax credit to be deducted from tax due ..................... 6 3. Part B – Section 6B rebate (additional medical expenses tax credit) ................... 8 3.1 Background ................................................................................................................ 8 3.2 Qualifying persons for whom expenses may be claimed ............................................ 8 3.2.1 The meaning of “dependant” ...................................................................................... 8 3.2.2 The meaning of “spouse” ............................................................................................ 9 3.2.3 The meaning of “child” for purposes of the additional medical expenses tax credit ..... 9 3.3 Qualifying medical expenses .................................................................................... 10 3.3.1 Expenditure incurred inside the Republic .................................................................. 10 3.3.2 Expenditure incurred outside the Republic ............................................................... 11 3.3.3 Qualifying disability expenditure ............................................................................... 11 (a) Prescribed diagnostic criteria for a disability ............................................................. 12 (b) Confirmation of disability (ITR-DD form) ................................................................... 14 3.3.4 Expenses relating to a physical impairment .............................................................. 15 3.4 Timing of claim for qualifying medical expenses ....................................................... 16 3.5 Contributions and qualifying medical expenses deemed to be paid by the taxpayer ................................................................................................................... 17 3.6 Amount of additional medical expenses tax credit to be deducted from tax due ....... 17 3.6.1 Taxpayers aged 65 years and older ......................................................................... 17 3.6.2 Taxpayers with aARCHIVED disability ........................................................................................ 20 3.6.3 Taxpayers under the age of 65 without a disability ................................................... 22 4. How to claim the medical scheme fees tax credit and additional medical expenses tax credit ................................................................................................ 26 4.1 Persons registered for income tax ............................................................................ 26 4.2 Persons not registered for income tax ...................................................................... 27 5. How to object to the disallowance of an medical scheme fees tax credit or additional medical expenses tax credit ................................................................ 28 6. Other information ................................................................................................... 28 6.1 Relief of customs and excise duty on a motor vehicle adapted for a physically disabled person ........................................................................................................ 28 Annexure A – The law ..................................................................................................................... 29 Annexure B – The prescribed list of expenditure............................................................................ 32 Guide on the Determination of Medical Tax Credits (Issue 7) ii Glossary In this guide, unless the context indicates otherwise – • “AMTC” means the additional medical expenses tax credit; • “contributions” mean fees paid to a medical scheme; • “medical scheme” means a medical scheme registered under section 24(1) of the MS Act; • “MS Act” means the Medical Schemes Act 131 of 1998; • “MTC” means the medical scheme fees tax credit; • “paragraph” means a paragraph of the Seventh Schedule to the Act; • “section” means a section of the Act; • “the Act” means the Income Tax Act 58 of 1962; and • any other word or expression bears the meaning ascribed to it in the Act. ARCHIVED Guide on the Determination of Medical Tax Credits (Issue 7) 1 1. Background Expenditure of a personal nature may generally not be taken into account in determining a taxpayer’s income tax liability, under South Africa’s tax system. One of the notable exceptions relates to medical expenditure. South Africa is aligned with the practice in many other countries of granting tax relief for medical expenditure. There are a number of reasons that tax systems provide such relief. One of the reasons is that serious injury or illness can present taxpayers with disproportionately high medical bills in relation to income, which can be difficult to meet. The resulting hardship affects a number of economic areas for taxpayers, including the ability to settle obligations to the fiscus, such as a tax bill. Historically, South Africa utilised a deduction system to facilitate tax relief for medical expenditure. Allowances, subject to certain limits, were permitted to be deducted from income for contributions to medical schemes, as well as for out-of-pocket medical expenditure. In 2012, tax relief for medical expenditure began a phased-in conversion from a deduction system to a tax credit system. The reason for the change was to eliminate vertical inequity relating to medical contributions: those at higher marginal tax rates received a larger reduction of tax payable than those on lower marginal rates, in respect of the same amount of medical expenditure. The purpose of the change was to spread tax relief more equally across income groups, thus bringing about horizontal equity – those who pay equal values for medical expenditure receive absolute equal tax relief. A tax credit system differs from a deduction system in that, instead of permitting a deduction of the medical allowance against a taxpayer’s