The taxman is mean when it comes to allowing taxpayers to deduct amounts from their taxable income. Indeed, there are only 10 different categories of tax deductions and it should be every taxpayer`s goal to make the most of what there is.
Part three of the annual tax return (IT12) deals with deductions. In this section you slot in your actual costs for each deduction and the computer calculates the tax-deductible portion (if any).
* MEDICAL AND DENTAL EXPENSES:
This allowance is designed to provide relief to taxpayers who are disabled or in poor health. If you're fit, able and of sound mind, you're unlikely to get any tax relief.
There are three amounts you need to fill in on the tax return. First, the amount you contributed to your medical aid fund. Many funds provide their members with an annual certificate showing this figure.
Remember that if your employer paid your contributions to the fund (that is, on a so-called non-contributory fund), you cannot claim the contributions.
The next amount you are required to fill in is for medical expenses you have paid in excess of the portion recovered from your medical aid fund (the latter amount may be stated on the certificate from your fund).
The taxman permits a wide range of allowable medical expenses, including alternative medicine sources like naturopaths and homeopaths. You can claim your hospital and clinic bills and the cost of home nursing.
The crux on whether the expense is allowed or not is that the medical institution or practitioner should be registered with their industry or professional body (for a list of allowable expenses see the information brochure that comes with your tax return).
You can also claim medical expenses which you paid while you were travelling overseas.
The third part of this allowance relates to disability. If you or any member of your family (including dependant step-children) is disabled, you slot your total medical expenses figure into this block (this is important as you get a bigger deduction).
The term disabled is defined by the taxman in the information brochure and covers physical and, for the first time this year, mental disability.
To calculate your tax deduction: if you are 65 years or older (on the last day of the tax year) you get your total expenses as a deduction.
If you are under 65, this is the way it works: from your total expenses deduct the greatest of the following two figures, R1 000 or five percent of your taxable income. That is your deduction (if any). However, if you or a family member are disabled, you get your total expenses less R500 as a deduction. Do not submit your medical vouchers and receipts with your tax return, but keep them in an accessible place to authenticate your claim if the taxman has a query.
It makes sense for working couples to allow one spouse to claim all the medical expenses paid (except of course medical aid contributions paid by the other spouse) so that the high tax ceiling can be surpassed and a bigger deduction claimed.
* PENSION FUND CONTRIBUTIONS:
You can pick up the total of your contributions from your IRP 5 (the tax certificate you receive from your employer). Your tax deduction is limited to the greatest of the following two amounts, R1 750 or 7,5 percent of your income from retirement-funding employment. What this term refers to is the portion of your salary on which your employer calculates your fund contributions, which depends on the rules of the pension fund. Some funds exclude bonuses and fringe benefits from the calculation.
You can claim a further deduction for arrear pension fund contributions. This applies when you buy back extra years in your fund. In this case the tax deduction is limited to R1 800 a year (but you can claim your excess arrear contributions in future years under this deduction).
If you contribute to a provident fund you cannot claim any tax deduction (which is why enlightened employers form non-contributory funds for their employees).