"Blue sky" thinking on the Taxman?

With the advent of air travel, the world has become a smaller place. Many families are now spread across the globe it is not unheard of for South African resident parents to have their children living, working and studying in the UK, Australia, the United States and many other countries. Good news for the airline industry.

But, the high cost of travelling to see friends and family on a regular basis can be prohibitive. Added to this is the unfortunate fact that not all of this travel from far flung places is for holiday or joyous occasions. To the contrary, in many cases, families travel far and wide to be at the bed-side of a seriously, or terminally, ill member of the family.

One would not expect the cost of the private travel to be deductible for South African tax purposes. But, just when many people argue that Mr Manuel imposes high taxes, it may come as a pleasant surprise for many taxpayers and their advisors to learn that SARS could meet the costs of private travel, in certain circumstances. As is often the case with tax law, the issues are complex and taxpayers are advised to seek specialist tax advice in order to ensure they achieve the most optimum tax result. The tax position of each taxpayer depends on their precise facts and circumstances.

So precisely how and in what circumstances can a family member travelling from London to South Africa to visit someone be tax deductible in South Africa, of all places? In the comfort of a first class seat on an aircraft way above the clouds, "blue sky" thinking could reveal the answer for many. To save readers from having to go through the experience, consider the example below.

Mr Smith, aged 75, has three children. All three live in London. Smith underwent open heart surgery but because of complications he developed septicaemia. As a result, Smith spent 6 months in and out of intensive care at his local Johannesburg based private hospital. Because of Smith's dire state of health, each of his three children visited him (during the 6 months) from London three times. The cost of the total of 9 return trips was R100,000.

Mr Smith naturally wanted to see his children while he was suffering in hospital, so he paid for all 9 return flights. Section 18 of the Income Tax Act has of late been under the microscope and it is under this section that it may be possible for Smith to deduct the travel costs of R100,000 (at a marginal tax rate of 40% a R40,000 tax saving!).

Section 18 deals with the deductibility of medical and dental expenses. It also allows for a deduction to be made where .... any expenditure (other than expenditure recoverable by the taxpayer or his or her spouse) necessarily incurred and paid by the taxpayer in consequence of any physical disability suffered by the taxpayer ......

It would not appear to be impossible for a taxpayer to successfully argue that the R100,000 travel costs were necessarily paid in consequence of a physical disability and thus tax deductible, by virtue of the above provision. It should be noted that (legitimate) tax planning is perfectly legal. But, when considering tax plans there are a number of complex issues to consider. In the example above, case law and donations tax would be among some of the additional tax issues to consider.

Written by:Eugene Bendel
CEO, Bendels Consulting