South African taxpayers can get R10,000 relief from SARS

South Africans with significant out-of-pocket medical expenses may qualify for an additional medical tax credit, lowering their tax burden.

Tax Consulting South Africa’s Tshepo Thebyane and Priscilla Sefoka said Section 6B of the Income Tax Act makes this possible.

This section permits an additional medical tax credit, allowing for an additional medical tax credit claim (AMTC). The credit is given only if the out-of-pocket expenses align with the definition of qualifying medical expenses set out in the Act.

“Taxpayers who incurred qualifying medical expenses and have been able to fully support their claims have seen the benefits,” Thebyane and Sefoka said.

“In practice, successful medical tax credit claims have amounted to additional medical tax credit claims between R2,000 and R100,000 per tax year.”

This has stemmed from out-of-pocket expenses, such as laboratory test results and costs for a dependent suffering from a disability, to name a few.

The Council of Medical Schemes’ latest Industry Report confirmed that medical aid members have incurred at least R40 billion in out-of-pocket payments during the 2023/24 tax period.

Although the benefits are significant, Thebyane and Sefoka explained that the requirement for adequate substantiation poses substantial practical challenges.

“Taxpayers cannot merely include medical expenses in their tax return and assume that the corresponding credit will be granted, without adequate substantiation,” they said.

The burden of proof lies with the taxpayer, and SARS requires supporting documentation for all amounts claimed as qualifying medical expenses.

This includes tax invoices, detailed schedules and medical scheme tax certificates issued by medical aid administrators.

Where the taxpayer has incurred medical expenses directly related to a disability, SARS further requires the taxpayer to submit a completed ITR-DD form, a formal confirmation from a registered medical practitioner.

Thebyane and Sefoka said that taxpayers often overlook the obligation to retain supporting documentation for at least five years, as required by the Tax Administration Act.

“Without these documents, even valid claims may be disallowed, underscoring the importance of diligent and proactive record-keeping,” they said.

Qualifying medical expenses

Thebyane and Sefoka explained that “qualifying medical expenses” are broad. They include amounts paid during a tax year to registered medical practitioners, such as doctors, dentists, optometrists, osteopaths, herbalists, physiotherapists, chiropractors, or orthopaedists.

These payments may be for professional services rendered or for medicines supplied to the taxpayer or their dependants.

It also includes payments to hospitals or nursing homes, registered or enrolled nurses, midwives, or nursing assistants for illness or confinement, and pharmacists for prescribed medicines.

Qualifying medical expenses further include other medical expenses prescribed by SARS incurred by the taxpayer due to a disability or mental impairment affecting either the taxpayer or their dependent.

In addition to the above, for medical expenses to meet the definition of “qualifying medical expenses”, Thebyane and Sefoka said they would also need to be “out-of-pocket”.

In other words, the medical expenses would have to be unrecoverable by the taxpayer or their spouse from any person, including medical aid funds. The taxpayer must have solely borne the costs.

The definition of dependent is also important for correct AMTC claims. According to section 6B (1), a dependant means a spouse, a child and/or the child of a spouse, or any other member of the family who is in the taxpayer’s care and support.

Claiming the tax credit

According to Thebyane and Sefoka, the availability and extent of a tax credit depend not only on the amount spent but also on personal circumstances, such as the income level, age, or disability status of the taxpayer or his or her dependent.

In ordinary cases, relief only applies if your medical expenses and excess contributions exceed 7.5% of your taxable income, and even then, only 25% of the excess is claimable.

“Importantly, earning more income while incurring more medical expenses does not necessarily result in a higher tax credit,” they explained.

This is because a higher income raises the threshold to be exceeded, and the relief is calculated on only a portion of the excess.

“On the other hand, earning less income while incurring relatively higher medical expenses will most likely mean that you will claim a higher tax credit,” they said.

“Simply put, there is an inverse relationship between the expenses a taxpayer incurs and their taxable income after deductions.”

Interestingly, the calculation of the AMTC is more lenient in cases where either the taxpayer or their child and/or spouse is disabled, or the taxpayer is 65 years and older.

In such cases, 33.3% of all qualifying medical expenses and the excess medical aid contributions are claimable. Thebyane and Sefoka added that understanding which category taxpayers fall under is essential before claiming.

“While the additional medical tax credit is available to provide relief for qualifying medical expenses, determining eligibility and calculating the correct credit requires careful consideration,” they said.