Medical rebate a welcome initiative

Last weekend I received an SMS from SARS drawing attention to the changes to the medical rebate system that took effect on March 1. A great initiative! There are going to be changes on this month’s payrolls – it’s better to avoid surprises.

The new medical rebate system is a fairer package. In the past a mere 200000 super-tax taxpayers received the maximum 40% tax relief on their employers’ medical aid contributions. The remainder, nearly four million, received less. The lowest-level taxpayer received tax relief of just 18%.

From March 1 every taxpayer receives the same relief, regardless of earnings. That’s R230 a month for the member and first dependant and R154 a month for subsequent dependants.

Medical expenses claimed in tax returns will still qualify for tax relief up to 25% of expenses incurred, if medical expenses exceed 7.5% of taxable income.

Taxpayers over the age of 65 will not be affected until 2014.

The tax act has also widened the definition of “dependent” for the purposes of medical deductions and rebates. The word now includes immediate family for whom a taxpayer is liable for medical support. So a mother-in-law’s medical aid premium can potentially give tax relief for the son-in-law.

Some say the changes to medical rebates are a way of paying for the pending National Health System. Rubbish. The rebate system simply ensures that all taxpayers, regardless of taxable income, receive the same tax relief.

It was encouraging to hear in the budget speech that Finance Minister Pravin Gordhan is not going to throw money at rushing in the NHI. He wants the existing health system fixed up first.

NHI will ultimately require funding of R125-billion more than the existing healthcare system. The individual taxpayer will never handle the load alone.

Please remember that the medical rebate is not the only change to the computation of taxable income effective March 1.

Some taxpayers will also commence paying fringe benefits tax on group life and permanent health insurance premiums paid by their employers.

Again, this is not all bad news – at least the benefits will be tax free for the surviving family, who need tax relief the most.

Originally published in the Sunday Times Tax Talk column.

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