Taxman saves us more on medical aid
As promised when the new medical aid tax regime came into plan, we see and welcome further increases in the deduction allowed for tax purposes.
At present, an employee may receive a deduction against his monthly taxable income of R530 for each of the first two beneficiaries and R320 for each additional beneficiary. Following the 2008/9 budget announcement, the increase, as of 1 March 2008 of these rebates has pushed this up to R570 and R345 respectively.
The effect this has on an employee’s taxable income is a reduced taxable fringe benefit which must be taken into account when the employer’s medical aid contribution exceeds the above capped amounts.
This is best illustrated by way of an example: John is married with one child and his employer contributes the entire medical aid contribution of R2 555 per month.
Cash salary R15 000.00
Medical aid fringe benefit
R 1 175.00 (R2 555 less R1060 (R530 x 2) less R320)
Taxable earnings R16 175.00
PAYE R 2 642.00
Net earnings R12 358.00 (R15 000.00 – R2 642.00)
At the end of March 2008 the newly stated caped amounts for tax-free medical scheme contributions will have the following result. Let us assume the same scenario as above applies.
Cash salary R15 000.00
Medical aid fringe benefit
R 1 070.00 (R2 555 less R1140 (R570 x 2) less R345)
Taxable earnings R16 070.00
PAYE R 2 615.80
Net earnings R12 384.20 (R15 000 – R 2 615.80)
The medical aid fringe benefit saving from February to March calculates to R105 and the total saving in tax amounts to R26.20. That over a year amounts to R314.40 per annum.
Something else of interest for persons with a disability is that the term “handicapped person” as it is currently defined in the Income Tax Act, will be reviewed as it is believed to be outdated. We believe this section will be widened to include a number of areas that currently do not fall into the definition but we would logically consider handicaps.
Further consideration will also be given to limiting the types of expenses that may be claimed where these expenses do not reasonably relate to a disability. Remember that where an employee or his spouse or child is handicapped, all qualifying medical expenses paid by the taxpayer i.e. not only those paid in respect of the handicapped person and all expenses incurred in consequence of any physical disability may be claimed as a deduction.
While the new tax treatment of medical aid contributions caused some excitement with employers and employees, the further changes must be taken into account to ensure compliant running of your payroll.
