Medical aid tax deductions and rebates - How do they work?

Every year, we spend thousands of Rands on medical care. This includes medical aid fund contributions, medication, doctor's appointments etc. Luckily, a few tax benefits can lessen the pain a bit.

What is it?

Technically speaking, there are no medical tax deductions available in South Africa. There are however two medical tax rebates, Section 6A rebate and Section 6B rebate, that can be utilised to reduce your income tax liability. The difference between a rebate and a deduction is the following:

• Tax deductions are deducted from taxable income before the tax rate is applied.
• Tax rebates are deducted from the income tax liability after the tax rate has been applied. Rebates can not create a refund.

Below is a simplified example of an income tax calculation to show the difference:

How does it work?

Section 6A Rebate (Medical aid tax rebate)

Only medical scheme contributions paid by the taxpayer, for him/herself and his or her dependents, to a registered medical scheme will be considered to calculate this medical tax credit. A hospital plan will not qualify as it is seen as a form of insurance and not a medical aid.

Dependents

Dependents include the following:

• The taxpayer's spouse;
• The taxpayer's child/children and those of his/her spouse;
• Any other member of the taxpayer's family for whom the taxpayer is liable for care and support;
• Any other person who is recognised as a dependent by the rules of the medical aid scheme.

How is it calculated?

The Section 6A medical tax credit is set at a fixed amount per month. It is calculated as follows:

Example

Mr A and his wife have two children. They were members of the Discovery Health medical aid scheme for the entire 2022 tax year. They received a medical aid tax certificate at the end of the year that set out the amount of medical scheme contributions to the medical aid fund, and the number of dependents. The Section 6A rebate will be calculated as follows:

Mr A and his wife: R664 per month for 12 months

Child 1: R224 per month for 12 months

Child 2: R224 per month for 12 months

The Section 6A rebate for the 2022 tax year will be R13,344 ((R664 x 12) + (R224 x 12) + (R224 x 12))

Section 6B Rebate (Additional medical rebate)

The Section 6B rebate is calculated on the amount of qualifying medical expenses incurred by the taxpayer during the year of assessment.

Qualifying medical expenditure falls into 4 categories:

• Qualifying medical expenses in South Africa
• Qualifying medical expenses outside of South Africa
• Qualifying medical expenses for disabilities
• Qualifying medical expenses for a physical impairment.

Medical expenses inside and outside of South Africa

These are medical expenses that have been paid during the tax year any registered:

• Medical practitioner, dentist, optometrist, homoeopath, physiotherapist, chiropractor or orthopaedist for professional services rendered or medicine supplied to the taxpayer or any dependent.
• Nursing home, hospital or any registered nurse or midwife in respect of illness or confinement of the taxpayer or any dependent of the taxpayer.
• Pharmacist for any medicine prescribed by any person in the above 2 paragraphs.

These qualifying expenses must not have been recovered from a medical aid fund. Remember that out of pocket expenses such as headache pills and cough syrup will not qualify as medical expenses if a medical practitioner has not prescribed it.

Qualifying medical expenses for disabilities

Disabilities include moderate to severe mental, physical, communication, hearing and vision disabilities. To include these expenses in the tax rebate, you and a relevant medical practitioner will have to complete an ITR-DD form (Diagnosis of disability form).

How does the calculation work

Examples

Under 65 with no disability

John is 48 years old and is married. He has 2 daughters. According to his medical aid tax certificate, John contributed R120,000 to his medical aid. No one in the family had a qualifying disability. He paid R40,000 qualifying medical expenses that were not recovered from his medical aid and his taxable income was R500,000.

John's medical aid tax credits will be calculated as follows:

Section 6A rebate

((R347 x 2) + (R234 x 2)) = R1,162 per month.

R1,162 x 12 = R13,944 for the year

Section 6B rebate

25% x (((R120,000 - (4 x R13,944)) + R40,000) = R26,056

R26,056 - (7.5% x R500,000) = RNil (The amount is limited to RNil)

His total medical credit will be R13,944 for the year.

Over 65 or under 65 with a disability

John is 67 years old and is married. According to his medical aid tax certificate, John contributed R120,000 to his medical aid. John is blind. He paid R40,000 qualifying medical expenses that were not recovered from his medical aid and his taxable income was R500,000.

Section 6A Rebate

R347 x 2 = R694 per month

R694 x 12 = R8,328

Section 6B Rebate

33% x ((R120,000 - (3 x R8,328)) + R40,000) = R135,016

John's medical credit for the year will be R143,344 (R8,328 + R135,016)

Conclusion

The calculation of the medical tax credits can be quite complicated, and you should take care to complete your annual tax return accurately. Keep copies of your medical tax certificate as well as the receipts of all your qualifying medical expenses for tax purposes.