Medical expense tax deductions - is the glass half full?

CAPE TOWN - There have been several findings and changes to tax laws over the past three years relating to the deduction of medical expenses and any expenses incurred in consequence of a disability ("qualifying medical expenses").  One of these findings and changes is discussed below.  Because of the change, it is considered that if all appropriate claims are made by taxpayers the proverbial glass will in fact be "half full".  That is to say that, "prima facie" more than half the number of South African taxpayers should be able to deduct all their qualifying medical expenses for the 2010 tax year of assessment.

Broadly, the reason for this assertion is that a substantial proportion of our taxpayer population is either (a) over 65 or (b) that one member of the taxpayer's family suffers from a "disability", as defined.  With effect from March 1 2009, the old definition of a "handicapped person" has been replaced by a definition of "disability".  It is this change in law and its wider meaning than the previous definition which should mean that a significant number of additional taxpayers are entitled to deduct all their qualifying medical expenses.

It is noted here that qualifying medical expenses of the entire family and not just those in relation to the person with the disability can be deducted.  In order for the taxpayer to be able to deduct all his or her expenses, it is not a requirement in our law that any expenses are incurred in respect of the person with the "disability".  The requirement is only that the taxpayer, his spouse, or his or her child suffers from a "disability".

A "disability" means a moderate to severe limitation of a person's ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment if the limitation has a prognosis of lasting more than a year (or has lasted for more than one year).  The disability must be diagnosed by a registered medical practitioner.

There are a number of reasons why so many taxpayers should be able to claim all their qualifying medical expenses by virtue of the disability provision, namely: -

(1)                The wide nature and number of people affected by the various illnesses and impairments.  In addition to the old "handicapped person" definition, the new provision could include any other physical impairments such as HIV/Aids, cancers, lung,  cardiac, liver and kidney diseases, diabetes etc.  The number of physical impairments is substantial and it is believed that all will qualify under the new provision provided the conditions regarding functionality and duration are met.

(2)                There are over 200 listed mental impairments; they are listed on the Diagnostic and Statistical Manual IV ("DSM IV").  Depression is the most diagnosed mental illness and affects approximately 10% of people.  Because of the current recession it is understood that the number of diagnosed cases of depression has increased.  ADD/ADHD is prevalent among school children; severe cases of insomnia, panic and anxiety attacks, obsessive compulsive disorder, anorexia, obesity, alcoholism, drug addiction, bereavement (to list just some of the mental impairments) are not uncommon and are all mental illnesses included on the DSM IV.  Roughly, about 20% of people are affected at some point by a mental impairment. 

(3)                The majority of deceased estates should be able to deduct all medical expenses as a severe physical impairment must have been present prior to date of death.  Paradoxically though, taxpayer's who die suddenly, or accidentally, may not qualify because they are unable to meet the one year prognosis test.  This anomalous situation has been raised with Sars and it is not yet known whether Sars will, as a matter of practice, allow all deceased estates to deduct all their qualifying expenses.  

(4)                The deduction is not taxpayer specific unlike the over 65 provision (i.e. the over 65 provision does not apply if the taxpayer's spouse is over 65).  In the case of "disability", the requirement is that 1 person of the taxpayer's "immediate family" (spouse or child) must suffer from a disability in order for all expenses to be allowable.  Because of the broad definition in our law (of the meaning of child), the diagnosis of 1 "disability" can in certain circumstances mean that 4 taxpayers could claim all their expenses.  A situation, for example, could be where a child has been diagnosed with down syndrome and the child's parents are divorced and both are re-married.  In that case, the biological parents qualify as well as the step-mother and step-father.  Because of the way the law is drafted, all 4 taxpayers may deduct all their qualifying medical expenses.  

Whether or not a taxpayer will be entitled to deduct all qualifying medical expenses will depend on the precise facts and circumstances of each taxpayer.  In many cases, careful consideration and advice will be required as it may not always be clear cut whether all the requirements in terms of the new definition of "disability" are met.  Notwithstanding this, in general it is considered that it is more likely than not that a taxpayer will be able to deduct all qualifying medical expenses for the reasons discussed above.

Maximisation of expenses, therefore, becomes relevant for a much larger population of taxpayers and specialist guidance in this area is recommended in order to ensure the most optimum tax result.  In particular, taxpayer's are not always aware that they can deduct all expenses incurred in consequence of any physical impairment or "disability", as defined.  Depending on the impairment or disability the deductible expenses can be substantial as they, unlike other provisions, can include private and/or domestic expenses.  This would include capital expenses such as modifications to properties and cars, and specialized computer equipment.  Other expenses could include school remedial fees, staff costs, travel expenses (including costs of air travel in certain circumstances).  As a result of another change of law effective from March 1 2009, expenses of all dependants on the taxpayer's medical scheme may be deducted.

There are a number of other issues to consider in relation to tax and medical expenses.  Suffice it to say that with the ever increasing costs of healthcare and costs associated with ill-health, the tax provisions in this area of tax law should be carefully addressed by taxpayers as a way of saving tax and/or obtaining tax refunds in respect of prior-years.

*Eugene Bendel is from Bendels Consulting.

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responses to this article

Wishful thinking! Completely ignores the list of eligible disabilities issued by SARS and other minor inconveniences to this expansive approach. by Still Awake on March 10 2010, 23:57 Find this comment inappropriate? Report it

@ Still Awake I don't think that the intention of the writer of this article was to provide an exhaustive list of qualifying disabilities, but rather to indicate how potentially wide the criteria actually are. In fact, long before SARS issued their "Comprehensive . .more Guide to Medical Expenses" a couple of years back, provision had existed whereby if ONE member of the taxpayer's family was "handicapped" (as defined before the amendments), ALL the medical expenses paid by the taxpayer on behalf of their immediate family would be fully deductible. I'm not convinced that this was the intention of the legislature (I could however be wrong - maybe those guys DO have a heart!), but it would make an interesting test case should SARS decide to disallow the full medical deduction where a family member is disabled. This highlights the need for taxpayers with disabled family members to check their assessments carefully, since the application of the 7.5% rule can make a massive difference to the amount deductible. . .less by Steven Jones on March 13 2010, 09:35 Find this comment inappropriate? Report it

medical expenses Good article. 1.Do I deduct expenses paid for the disabled person only or for the whole family. 2. Do I deduct amount paid by medical aid too or only amount that I paid from my pocket. 3. My child has hearing loss and we have insured his . .more hearing aids at R140 per month. Is this amount tax deductible, I suppose so . .less by lee on March 16 2010, 08:49 Find this comment inappropriate? Report it

Answers to Lee's questions Dear Lee, I am glad you found the article interesting. 1. Expenses of whole family are deductible including all medical aid contributions. 2. Only irrecoverable expenses are deductible. 3 Insurance deductible - I hope you are . .more also claiming deductions for the costs of the hearing aids themselves, if medical aid does not pay for full costs of them. Also, any other expendituire incurred (not recovered) in relatiion to your child (such as communication classes, other special schooling needs, sign language and even domestic help (if incurred in consequence of your child's disability). Also, adaptations to TV's or special TV (TV hearing devices etc) can be deducted. In summary, there are a lot of expenses that people are not aware of that can be deducted - too many to list here. You can re-open prior tax returns if you want and potentially get substantial tax refunds. If you want, I would be happy to consult further and what I do is keep initial fees very low and charge a success-based fee. You can contact me through Moneywebtax, or the details of Bendels Consulting is on the internet site if you do a google search. Kind regards Eugene Bendel . .less by Eugene Bendel on March 19 2010, 01:43 Find this comment inappropriate? Report it

Wishful thinking! - But.....? I agree with Mr Jones that my article involves wishful thinking! But, the assertion can become a reality if ALL appropriate claims are made. From the SARS and Treasury 2009 Tax Staistics released on 18 March 2010, it is clear that nowhere close to . .more all appropriate claims have been made in the past. The statistics, distressingly, show that only 0.34%, 0.42% and 0.78% of assessed taxpayers claimed medical expenses under the "disabled" (or "handicapped person" definition as it would then have been) provision for the 2006, 2007 and 2008 tax years, respectively. These statistics bear absolutely no correlation to the reality of the number of people who suffered from the relevant "handicaps". Depression alone shoud account for somewhere in the region of 10%! A lot of work therefore will be required in achieving the "glass half full" assertion. Thanks to Moneywebtax for publishing the article as publicity in this area helps taxpayers. Discrimination and prejudice is rife in our society. Bendels Consulting has, therefore, raised this issue with SARS and it is hoped that a practical and worakble solution can be reached so that GENUINE claims can be made without the need to disclose very private and sensitive information. Tax assessments can be re-opened for prior years and tax refunds obtained. Eugene Bendel . .less by Eugene Bendel on April 06 2010, 06:39 Find this comment inappropriate? Report it

What do you need to prove a disability? Do you just need a medical certificate from a medical practitioner for the tax period or part of the tax period in question? by Kalala on April 15 2010, 17:14 Find this comment inappropriate? Report it

Medical expense deductions I only have 1 Kidney and it is only 20% functional. Since January 2009 I go to dialysis twice a week for 4 hours at a time. Would I also qualify for deduction of all medical costs? I have my own business and am self-employed. Thanks for our . .more comment. My e-mail address: vltravel@iafrica.com Kind regards, Horst von Lieres . .less by Horst von Lieres on April 22 2010, 16:28 Find this comment inappropriate? Report it

PROOF OF "DISABILITY" Dear Katala, The requirements that Sars are proposing are quite onerous in terms of what your medical practioner needs to do. Bendels Consulting has raised the issue with Sars- Doctors are, generally, not conversant in tax laws and the . .more question as to who will pay for completion of the detailed medical certificate is of concern. It is hoped that a more simplified medical certificate piocess can be achieved, although the need for only GENUINE claims to be made must be borne in mind to avoid abuse . To address your question specifically. You will only need a medical certificate for part of the year provided the prognosis is for longer than one year (or has lasted for more than 1 year). To give an example, say, an autistic child was born in Augusr 2009, the medical certificate need only cover part of the 2010 tax year and state that it is permanent. In short, if a "disability" is diagnosed on the last day of the year and has a prognosis of more than one year than 1 year (or lasted one year) then all "qualifying medical expenses" should be deductible for the entire 2010 tax year. Hope this helps. If you want further infornation, you can contact me through me Moneywebtax or at ebendel@bendelsconsulting.co.za. Regards Eugene Bendel Bendels Consulting . .less by EUGENE BENDEL on April 28 2010, 13:20 Find this comment inappropriate? Report it

RESPONSE TO HORST'S QUESTION For the benefit of Moneywebtax redaers, I will address your question in general on this site. I will write to you personally on your email to address matters specific to you. In general terms, I would expect that only having one kidney which is only . .more 20% functional will qulaify as a physical impairmaent. Your kidney problems are clearly "moderate to severe" and affects your "functionalty" The physical impairment will last more than 1 more so the 1 year prgnosis test should be met. I would't imagine that you will have difficulties obtainining the appropriate medical certificate. All "qualifying medical expenses" should thus be tax deductible. As I say, I will write to you separately but I hope this helps other Moneywebtax readers, who may contact me through Moneywebtax or at ebendel@bendelsconsulting.co.za. Eugene Bendel Bendels Consulting . .less by EUGENE BENDEL on April 28 2010, 13:43 Find this comment inappropriate? Report it

LIST OF PHYSICAL IMPAIRMENTS / DISABILITIES Hi there...please could you advise where I can get a list of what SARS consider a physical impairment / disabllity? the list of expenditure now allowed is readily available...but I cannot get anyone at SARS to provide me with what I need. (they keep . .more sending me the expenditure!) Please Can you Help? . .less by Anthea Spowart on June 09 2010, 16:48 Find this comment inappropriate? Report it

LIST OF PHYSICAL IMPAIRMENTS / DISABILITIES In the document of expenditure you will see the definition of "disability" is set out. A physical immpairment is referred to in the same document and is something which is considered to be less than restraining as a "disability" as defined. So, for . .more example, a visual disturbance which is not a "disability" as defined, should be considered to be a physical impairmnet, if that's not complex enough! As respects, "disability", you will need to refer to form ITR-DD (available on SARS website) but be advised that there are over 200 "potentilal" "disabilities" (under the 6 categories listed on the form). The form must be duly completed and retained before submitting your 2010 tax return, if you want to and can make a valid claim under the "disability" provisons. The above comments are for information purposes only and specialist tax law advice is recommended as the rules are so new and highly complex. They require tax law knowledge and some undersatnding of medical matters. You should seek specailst tax law advice from your own advisor. Alternatively, Bendels Consulting could advise accordingly. Eugene Bendel Bendels Consulting ebendel@bendelsconsulting.co.za www.bendelsconsulting.co.za . .less by EUGENE BENDEL on July 21 2010, 01:45 Find this comment inappropriate? Report it

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