Understanding taxation on your medical aid contributions can save you a healthy sum.
Currently, you are taxed on the amount by which your employer's contributions to your medical aid fund exceeds two-thirds of the total contributions. This tax is levied as a fringe benefit in your hands.
Lood la Grange, legal adviser for Sanlam's marketing division, says the Income Tax Act allows you to deduct medical expenses not covered by your medical aid for the purposes of tax.
If you are under 65 you can deduct these medical expenses if they exceed the greater of either R1 000 or five percent of taxable income. In other words, the first R1 000 or five percent of taxable income, whichever is the greatest, does not qualify for a deduction.
If you are over 65 years all your medical expenses not covered by medical aid are tax deductible.
But if your employer pays more than two-thirds of your total contributions, you don't qualify for a deduction at all.
If you make the one third contribution to the fund yourself, you do qualify for this deduction.
So, if you pay substantial medical expenses out of your own pocket, it will benefit you taxwise if you pay one-third of your contribution to your medical aid on which your are currently paying tax.
The reason is that your own contribution to your medical aid together with your employer's contribution can push you over the limit and disqualify you for a tax deduction for medical expenses not covered by your medical aid.
The smaller your income, the sooner you will reach the limit.
La Grange says neither you nor your employer is disadvantaged if your employer pays you the one third for your medical aid fund contributions on top of your salary and you in turn pay it to the medical aid fund. If you have with large medical expenses you could benefit, he says.
Amounts paid out of your pocket on behalf of yourself, your spouse or children to the following are deductible:
* Medical practioner, dentist, optometrist, homeopath, naturopath, oseopath, herbalist, physiotherapist, chiropractor or orthoptist for professional services rendered or medicines supplied;
* Nursing home, hospital, nurse, midwife, nursing assistant in respect of illness or confinement; and
* Pharmacist for medicines supplied on prescription.