With effect from 1 March 2014 a deduction no longer applies to medical scheme contributions for taxpayers over the age of 65. A medical aid tax credit applies to all taxpayers, but additional second and third tier credits apply depending on the tax payer’s age. These are details below.
Taxpayers over 65
A three tier tax credit basis will apply as follows:
- The standard medical tax credit
- 33.3% for medical aid contributions that exceed three times the standard credit
- 33.3% of qualifying medical expenses
Taxpayers below 65 with a disability or disabled dependant
As per a taxpayer over 65
Taxpayer below 65
- A two tier tax credit basis will apply as follows:
- The standard medical tax credit
- 25% of the amount by which the aggregate of the medical aid contributions exceed 4 times the standard medical tax credit plus the qualifying medical expenses which exceed 7.5% of the taxable income.
For purposes of calculating the standard medical tax credit, the first dependant will always be treated as an adult dependant, and all other dependants will be treated as minor dependants, irrespective of the actual data that is recorded on the JU4DC Medical Aid record.
For ease of calculation, the following calculation is applied:
The sum of the total number of Adult, Additional Adult and Minor dependants and subtract 1.
Multiply this value by the tax credit amount for Minor Dependants (currently R172) and add the amount for Adult Dependants (currently R257).
The second tier tax credit is based on the taxpayer’s total taxable income. As this can include income that is not paid via the payroll, this cannot be calculated by the payroll.
This is dealt with in the taxpayer’s annual submission. This is confirmed in the note under section 9.3.5 of SARS’ PAYE-GEN-01-G04 - Guide for Employers in respect of Employees Tax - External Guide 1.
In both under 65 and over 65 cases, the qualifying medical expenses will not be known and therefore are not a factor in the calculation of the tax on annuities.
When calculating the taxable amount in the Annuity Payment run, if the Annuitant’s Tax Territory is SOUTH AFIRCA, or if the Annuitant’s Tax Territory is null, the Territory for the Scheme is SOUTH AFRICA and the Due Date of the run is equal to or greater than 01/03/2014, and there is a Membership Payment record with a Payment Type of MEDICAL AID, the system will calculate the Medical Tax Credit depending on the Annuitants’ age as per the details per age below:
Over 65
If the Annuitant’s age is 65 or greater on 28/02/2015, the system will calculate the Medical Aid Tax Credit as per the following:
1. Calculate the first tier credit based on the following Territory Parameters as per the current calculation for Annuitant’s under 65:
- MEDAIDMEMREBATE For annuitant
- MEDAIDSPREBATE For spouse
- MEDAIDDEPREBATE For each dependant
2. Calculate the second tier credit as follows:
A Multiply the first tier tax credit calculated in 1 above by 3.
B Deduct A from the Regular Payment Amount on the Annuitant’s Membership Payment Detail for the Membership Payment record with a Payment Type of MEDICAL AID.
C If the value for B is positive, calculate the credit as follows:
B * 33.3 / 100
3. Sum the values calculated in 1 and 2.
Under 65
If the Annuitant’s age is less than 65 on 28/02/2015, the system will calculate the Medical Aid Tax Credit as per the following:
1. Read the value for Disability Status on the Membership Payment record and if it is MEMBER DISABLED or DEPDNT DISABLED, calculate the value as per the calculation for an Annuitant whose age is 65 or greater on 28/02/2015.
2. If the value for Disabled Status is null, calculate the first tier credit based on the following Territory Parameters:
- MEDAIDMEMREBATE For annuitant
- MEDAIDSPREBATE For spouse
- MEDAIDDEPREBATE For each dependant
In most cases the medical aid contributions are not deducted from arrear annuity payments. If an annuity is suspended, the medical aid contributions need to be paid separately to keep the medical aid cover in force.
As a result it is very unlikely that medical aid contributions will be deducted from arrear annuity payments. For this reason the medical aid rebates will be applied at the rates for the current tax year.