Many "happy" 2007 tax returns - get tax back

With the 2007 tax return "season" fast approaching and the issuance of tax certificates by medical schemes, it is perhaps a good time now for tax advisers, taxpayers and employers to get their "houses in order" in respect of claims for medical expenses.  The tax law relating to medical expense claims has become more complex and at the same medical costs are at unprecedented levels.

Medical scheme contributions are high and even the best schemes are unable to pay all claims.  The consequence of this is that there are large amounts of medical scheme contributions and irrecoverable expenses at stake when submitting tax returns. 

Subsequent events have shown that thousands of 2006 (and previous years) tax returns where incorrectly rendered and assessed (for certain taxpayers, it may not be too late to object to these assessments).  The reason for this was because of recent findings that taxpayers are entitled to claim for all their medical expenses where they, or a family member, suffer from a mental illness.  Estimates are that up to 5% of 2006 tax returns were incorrectly submitted and assessed.

The tax rules have changed for the 2007 tax year in respect of medical expenses and it is expected that up to 25% of taxpayers could claim for all their medical expenses of the whole family because of the mental health findings mentioned above.   Many of these taxpayers will get thousands in tax back.  

The amounts of tax at stake can be substantial as the medical expense deduction in the law does not just apply to medical and dental expenses.  Many taxpayers are unaware that the deduction includes expenses of a homeopath, a herbalist, naturopathy, physiotherapy, plastic surgery, cosmetic dentistry, rehabilitation clinics.  Additionally, any expenditure (such as remedial school fees, travel costs, costs of adapting a motor vehicle etc) incurred in consequence of any physical disability may also be deductible expenses.

Unless all medical expenses claims (including remedial fees, homeopathic fees, travel costs etc) have been submitted to the taxpayer's medical scheme, it follows that the tax certificate received from the scheme will not be complete for the purposes of making a claim for medical expenses.  If, for example, a member of the taxpayers family has a mental illness, then the taxpayer would be entitled to deduct all his/her medical expenses.  The taxpayer will need to carry out a reconciliation of total expenses paid by him less those expenses reimbursed by the scheme.  All medical aid contributions will be allowable either by way of an exemption from fringe benefits tax and/or as a deduction under Section 18 of the Income Tax Act.

In summary, therefore, it is expected that approximately 25% of taxpayers will be entitled to deduct all their medical expenses for tax purposes.  It is submitted that reliance alone on the income tax certificate from the medical scheme is unlikely to suffice as there may well be other expenses which the taxpayer can deduct.  Whether or not, a taxpayer can deduct all his/her medical expenses will depend on the precise facts and circumstances of the individuals involved.  Prior year assessments could also be re-opened which may result in substantial refunds to taxpayers.  Specialist tax advice is recommended in order to ensure the most optimum tax refund.

Written by Eugene Bendel
Bendels Consulting