“South Africa is aligned with the practice in many other countries of granting tax relief for medical expenditure.” (SARS)
In South Africa, tax relief for medical expenses is provided through a medical tax credit system. This means the tax relief is provided as a tax rebate – a reduction in tax payable.
If you are a non-provisional taxpayer, you have only a few more days to ensure you have claimed all these rebates.
SARS allows two types of medical tax credits.
- Medical scheme fees tax credit (MTC) for contributions to a registered medical scheme. This is normally applied through a company’s payroll system and reduces the monthly income tax due. Otherwise, it is claimed on the annual ITR12 income tax return.
- Additional medical expenses tax credit (AMTC) for other qualifying medical expenses, including those related to a disability or physical impairment. This tax relief is often under-utilised, and is explained in greater detail below.
How SARS defines disability
It is important to note that the definitions used by SARS to define a disability for the purposes of the tax rebate are not the same as the definitions used in general.
For tax purposes, a disability is defined as a moderate to severe limitation of any person’s ability to function or perform daily activities, as a result of a physical or sensory or communication or intellectual or mental impairment.
For a disability – whether physical, sensory, communication, intellectual or mental – to qualify for a SARS tax rebate, it must be diagnosed by a duly registered medical practitioner trained to diagnose the applicable disability or to express an opinion thereon and must also last, or have a prognosis of lasting, for more than a year.
However, a diagnosis alone is not sufficient. For each type of disability – physical, sensory, communication, intellectual or mental – listed in SARS’ definition of a “disability,” there are prescribed diagnostic criteria that assess the functional impact thereof on a person’s ability to perform daily activities.
In real life – with a practical example
An example will help to clarify. Let’s say a taxpayer’s dependent has been diagnosed by a medical practitioner with a mental disability such as autism spectrum disorder, which includes among others autism, Asperger’s syndrome, and childhood disintegrative disorder.
SARS will use the prescribed diagnostic criteria below to determine if the dependent’s condition qualifies as a mental disability for the purposes of claiming a tax rebate.
“With the exclusion of intellectual disability, a person is regarded as having a mental disability if that person has been diagnosed (in accordance with accepted diagnostic criteria as prescribed in the Diagnostic and Statistical Manual DSM-V) by a mental health care practitioner who is authorised to make such diagnosis, and such diagnosis indicates a mental impairment that disrupts daily functioning and which moderately or severely interferes or limits the performance of major life activities, such as learning, thinking, communicating and sleeping, amongst others. A moderate impairment means a Global Assessment Functioning Score (GAF-Score) of 31 to 60. A severe impairment means a GAF-Score of 30 and below.” (SARS)
Similarly, physical, sensory, communication and intellectual disabilities have their own prescribed diagnostic criteria.
This means that whether or not a certain disability – whether physical, sensory, communication, intellectual or mental – will qualify for the medical tax credits, can only be determined on a case-by-case basis.
Tax credits for other physical impairments and brain dysfunctions
In cases where a condition does not meet the prescribed diagnostic criteria to qualify as a disability (and is therefore “less constraining” than a disability as defined), the taxpayer may still be able to claim some medical tax credits for expenses for physical impairments related to the condition. These include, for example, poor eyesight, hearing problems, paralysis and brain dysfunctions such as dyslexia, hyperactivity or lack of concentration, but excludes medical conditions such as diabetes and asthma.
Which expenses may be claimed
SARS further publishes a prescribed list of physical impairment or disability expenses, which, in addition to other qualifying medical expenses including out-of-pocket expenses, can be claimed if you have paid for and not recovered such expenses.
The current list includes for example:
- Travel and transportation expenses
- Personal care attendant expenses
- Alterations or modifications to assets
- Insurance, maintenance, repairs and supplies
- Aids and devices such as orthopaedic shoes and mobility aids
- Prescription spectacles and contact lenses
- Services such as special education schools or rehabilitative therapy
- Service animals.
However, just because an expense is listed, it does not automatically qualify as a rebate. To qualify for the tax rebate, the expenditure must be “necessarily incurred,” and paid by the person “in consequence” of a qualifying disability – whether physical, sensory, communication, intellectual or mental – or physical impairment that does not qualify as a disability according to SARS’ definitions.
For example, if a person in a wheelchair who has no visual impairment buys a hand-held GPS, the cost of the hand-held GPS will not qualify as a deduction even though the expense appears on the list. This is because the hand-held GPS is not “necessarily incurred” in connection to this person’s disability. In the case of a visually impaired person, the cost of the hand-held GPS may qualify as a deduction.
SARS says the guiding principle is to identify those additional expenses a person with a disability would incur, without which the person would not be able to perform the activities of daily living.
For example, part of the school fees paid by taxpayers whose children living with a disability attend a private special education needs school, can be claimed. The amount that can be claimed is currently the difference between the fees paid to a private special needs school and the closest fee-paying private school, or the difference between the fees paid to a public special needs school and the closest fee-paying public school.
How much tax relief can you get?
Because the AMTC is a rebate against taxes payable, it is limited to the tax payable before the offset of employees’ tax and provisional tax, and does not create a refund, nor can the excess be carried forward to the next year of assessment.
How much you can claim also depends on whether it is you, your spouse or child that has a disability, or whether it is another dependent that has a disability, or if the claim is for physical impairment where the condition does not meet SARS’ definition of disability.
If you, your spouse or child has a disability, you can claim 33,3% of the qualifying out-of-pocket medical expenses (which includes disability related expenses), paid by you (and not recoverable) during the relevant year of assessment, as well as 33,3% of the fees paid (if any) to a registered medical scheme or qualifying foreign fund that exceeds three times the amount of the medical scheme fees tax credit (MTC) to which you are entitled.
If a dependant other than your spouse or child (such as a parent or sibling) has a disability, or if the claim is in respect of physical impairment (rather than a disability as defined by SARS), qualifying medical expenses may still be claimed, subject to more limitations.
These include that AMTC is limited to 25% of the amount by which the sum of the amounts listed below exceeds 7,5% of the taxable income:
- all contributions made by the taxpayer to a registered medical scheme that exceeds four times the MTC; and
- actual qualifying medical expenses (including expenses for a physical impairment or for a disability that is mild and not moderate to severe) paid by the taxpayer and not recoverable from the medical scheme.
What are the requirements for a successful claim?
The tax rebates for qualifying medical expenses can only be claimed in the year of assessment during which they are actually paid.
You can claim the qualifying medical expenses when you submit the income tax return (ITR12) for the relevant year of assessment. The deadline for this year is 24 October.
For SARS to consider the deduction of qualifying expenses in respect of the disability you will need a completed “Confirmation of Diagnosis of Disability form” (ITR-DD form) as supporting evidence of the disability.
The ITR-DD form is completed partly by the taxpayer and partly by a duly registered medical practitioner who is trained to diagnose the applicable disability or to express an opinion on the disability.
You are not required to submit the ITR-DD form with your income tax return. However, in the event of an audit or inspection SARS will request a copy, which must then be produced.
As with any tax rebate, it is always advisable to check in with your accountant and rely on professional assistance to ensure you minimise your tax bill that is due before the end of the month if you are a non-provisional taxpayer.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.