The new medical scheme fees tax credit

PwC South Africa publishes a monthly journal providing informed commentary on current developments in the tax arena, both locally and internationally. The April edition contains an informative article on the new treatment of medical expenses from a tax perspective. This is something that affects most of us, and with the time for completing tax returns around the corner, makes worthwhile reading. We publish an excerpt from the article below, with a link for readers who require more specific details.

The Taxation Laws Amendment Act 24 of 2011 provides for a section 6A to be inserted into the Income Tax Act to provide for the new medical scheme fees tax credit, which is to come into effect for years of assessment commencing on or after 1 March 2012.

Hitherto, a taxpayer has been entitled to a deduction, up to specified thresholds, for fees paid to a registered medical scheme.

Under the new system, the taxpayer is instead entitled to a fixed-amount rebate (which the legislation, perhaps confusingly, calls a credit,) the quantum of which is geared to whether the fees are paid in respect of prospective benefits to the taxpayer, or to benefits for the taxpayer and one or more dependants.

The intent is to treat taxpayers equally, in that a tax credit will have the same value to all taxpayers, whereas a deduction under the old system was more valuable to taxpayers on high marginal tax rates.

However, the new fiscal system is likely to have confused many people – and certainly all those who have a hazy understanding of the technical difference between a tax “deduction”, a tax “rebate” and a tax “credit”. They may well ask what the difference is between a rebate and a credit – to which the answer is that there is no difference. They are two words which mean exactly the same thing. Perhaps it is time that the Income Tax Act opted for uniformity in this regard by dropping the opaque word rebate and replacing it with the more straightforward and readily understandable expression, tax credit.

Please click here to download the rest of the article.


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