Caps increased on medical aid deductions

Julius Cobbett

11 February 2009

Threshold is raised from R570 to R625.

From March 2009, you will be able to deduct 10% higher medical aid expenses from your income tax. This hardly keeps pace with medical aid price increases.

Currently, you are allowed to deduct a maximum of R570 per month from your income tax for the first two beneficiaries. However, this will increase to R625 from March 2009.

For each additional beneficiary, the tax-deductible limit will increase from R345 to R380.

Proposed reform
Treasury says it is considering replacing medical aid deductions with a tax credit.

"To be broadly neutral in its overall impact, the tax credit would be set at about 30% of the prevailing deduction," noted the Treasury at Budget. "Where medical expenses in addition to contribution to schemes qualify as deductions, the credit would also be set at 30% of allowable expenses."

A consultation paper will be released during 2009 to allow for comment from interested parties. Implementation is proposed in two years' time. This will give the South African Revenue Service and employers time to make the necessary administrative requirements.

In preparation for this proposal, all medical scheme contributions will no longer qualify as tax-free fringe benefits. Instead, contributions made by employers will be regarded as taxable, and the employee will be able to claim a tax deduction (or a credit) up to the cap.

Write to Julius Cobbett: julius@moneyweb.co.za

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