Source: Johan van Tonder

Medical aid: How does it affect your tax?

Recent changes to the tax treatment of medical scheme contributions have opened the door to employers to provide more tax effective package structuring.

Minister Pravin Gordhan, in his Budget Speech in Parliament, announced that, in an effort to support further broadening of access to medical scheme membership, the monthly monetary caps for deductible medical scheme contributions are also increased.

Medical and disability expenses 2010/2011

• Taxpayers who are 65 and older may claim all qualifying expenditure
• Taxpayers under 65 may claim all qualifying medical expenses where the taxpayer or the taxpayer's spouse or child is a person with a disability
• Other taxpayers under 65 may deduct monthly contributions to medical schemes up to R670 for each of the first two dependants on their medical scheme and R410 for each additional dependant. In addition, they can claim a deduction for medical scheme contributions above the caps and any other medical expenses limited to the amount which exceeds 7,5% of taxable income (excluding retirement fund lump sums)

There are three areas in which employers can benefit:

• Firstly, most low-income options will be 100% into the tax deductible threshold. This means that an employer choosing to subsidise low income staff 100% of contribution will be able to provide them cover at absolutely no cost to the employee, as 100% subsidy with 100% tax-deduction will have no impact on the employee;
• Secondly, should an employer pay the contribution on behalf of the employee (via salary sacrifice or via subsidy) then the employee will enjoy the tax deduction monthly. This is a vast improvement in cash flow for the employee, and puts them in a far better position than if they paid in their private capacity and rendered an annual tax return;
• Thirdly, employees earning less than the required amount would be able to enjoy a tax deduction without needing to do a tax return.

Today's tax proposals mean the "ordinary Joe" will pay more for every day expenses, such as:

• Fuel taxes, including the road accident fund, will increase, as from 7 April 2010, by 25.5 cents per litre
• A packet of 20 cigarettes will cost R1.24 more
• A 750 ml bottle of wine will cost 12 cents more
• A 340 ml can of beer will cost 6.5 cents more, and
• A 750 ml bottle of liquor (spirits) will cost R2.22 more

However, MEDICAL COVER may not cost him a cent!