How to benefit from income tax / efiling?

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mr_norris

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Hey,

This is what I've managed to find out so far:

Medical

I have a hospital plan which my company pays for on my behalf. It being a hospital plan, only chronic medication is covered. Everything else I have to pay for.

Section 10.1.3 of the quick guide states that we may add the sum of the amounts:

- Not claimed from a medical scheme (but they must qualify as medical expenses)
- That appear as "claims not covered by scheme" on your medical tax certificate
- The amount goes under code 4020

The receipts should also be kept.

Edit: I've made a note of qualifying expenses here. Keep your receipts!

RA Contributions

Section 10.2.2 of the quick guide says that:

- You can only claim on contributions if you yourself is benefiting.
- You need to enter the contribution based on the certificate you received from the institution / your broker.
- The amount goes under code 4006

Income Protection Insurance

Section 10.2.3 says that a deduction will be considered should you have a policy (or more than one) which protects against the loss of income as a result of illness, injury, disability or unemployment.

Edit: By the looks of it, there are two options (assuming you pay for it, and not your company):

- We inform our employer, and they take our contribution into account for PAYE purposes. No fringe benefits will be applicable though. Contributions taken into account will reflect as code 4018 in the IRP5 certificate.
- If you didn't inform your employer, no code 4018 will appear on your return, so what to do here is a mystery :(

Source are here (quick guide), and here (comprehensive guide).

Please understand that I've composed this post as I think it would benefit me. If anyone else has any advice (or corrections!), please post and I'll happily add a tip here (or correct what I've said wrong :P)!

I don't mean this thread to be a summary of those two documents, I'd really appreciate some input on how to make submitting my income tax more beneficial to myself and others :)

After bothering to take some time to read up on submitting income tax, I'm quite frustrated with myself. One should not simply click next next next... without reading.
 
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Qualifying Medical Expenses

Straight from their comprehensive doc...

- For services rendered and medicines supplied by a registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist for professional services rendered or medicines supplied to the person or any dependant of the person;
- To a nursing home or hospital or any duly registered or enrolled nurse, midwife or nursing assistant (or to any nursing agency in respect of the services of such a nurse, midwife or nursing assistant) in respect of the illness or confinement of the person or any dependant of the person
- For medicines prescribed by a registered medical practitioner and acquired from a pharmacist
- Medical expenses incurred and paid outside South Africa.

Also, you have to retain proof of these expenses for 5 years after submission. SARS can request these.
 
How to benefit from income tax / efiling?
Click to expand...
You don't. Minimizing the damage is as good as it gets.

mr_norris said:
In my mind, that means I can keep every medical receipt for the year
Click to expand...
Not all. e.g. If you buy a Dispirin then no. If your doc hands you a script for some anti-biotics then its cool.

> it looks like they need to take into account the contributions when it comes to PAYE

That doesn't sound right to me. Generally employers only deduct their own stuff...e.g. company pension, company medical etc. One can ask an employer to voluntarily pay more PAYE though.

RA seems to be the best bet right now to minimize the paying part at least.

Also...there is a section that kills pretty much all the interesting deductions for salary earners. (except the obvious stuff like medical, RA etc). Section 23...something there forgot the subsection.
 
HavocXphere said:
You don't. Minimizing the damage is as good as it gets.
Click to expand...

LOL, amen to that.

HavocXphere said:
> it looks like they need to take into account the contributions when it comes to PAYE

That doesn't sound right to me. Generally employers only deduct their own stuff...e.g. company pension, company medical etc. One can ask an employer to voluntarily pay more PAYE though.
Click to expand...

It does sound odd, but it's possible that I misunderstood what they meant. Here is the snippet from the comprehensive doc:

Employee Owned Policy

- The contribution paid by a taxpayer qualifies as a deduction.
- An employer may on request of an employee, based on proof of payment provided by the employee, take such contributions into account for PAYE purposes. In these cases, no fringe benefit will be applicable. The contributions taken into account by the employer will be reflected as code 4018 on the IRP5/IT3(a) certificate.
- Where the employer did not take such contributions into account for PAYE purposes, no code 4018 will be reflected on the IRP5/IT3(a) certificate.
- The amount for this deduction must be entered next to source code 4018 in the “Retirement and Income Protection Contributions” section of your return in order for it to be taken into account during the assessment process. You must have the relevant material to support the deduction claimed on your return.

HavocXphere said:
RA seems to be the best bet right now to minimize the paying part at least.
Click to expand...

I agree. Everyone I've spoken to says I should get an RA, cause they get a chunk of what they've contributed back.
 
Make sure you understand the workings of the new medical tax credit MTC system .
 
mr_norris said:
I have a hospital plan which my company pays for on my behalf. It being a hospital plan, only chronic medication is covered. Everything else I have to pay for.
Click to expand...

IIRC,

Any contribution by an employer is classified as a fringe benefit under the new medical tax credit. You would actually have to pay tax on any amount that exceeds the MTC claim which (under correction, tax subjects were a while back) is R230.

So if your company pays a hospital plan of 1k you are deriving a fringe benefit of 770p/m.

You can still claim as normal all the other expenses tho.
 
Just become deaf , thats a tax benefit all by itself :P Well ask me , I'm halfway there
 
I'm going to chat to the accountant at work tomorrow, still at a bit of a loss when it comes to MTC's, but from what I've found (yeah I stole it from google :P):

The medical tax credit is a fixed amount that will be offset against tax payable. It will replace the tax deduction that was granted for medical scheme contributions, and is applicable to a person or a dependant with or without a disability. Where a person with a disability is not involved, medical scheme contributions in excess of four times the total credits and out-of-pocket medical expenses combined in excess of 7.5% of taxable income, can be claimed as a deduction from taxable income.

It looks like you have to contribute to a medical scheme (not just your company, as in my case). And that last bit doesn't look too promising either. I'm hoping all my medical bills total up to at least 7.5% of my taxable income. Then it looks like I'll benefit.
 
The MTC isn't all that great. It seems to work out worse for the higher earners and/or those with significant med expenses.
 
First up, the pocket guides are pretty handy. There are a few companies that offer similar handy guides that give a bit more detail and would cover the bulk of the cases that would affect tax payers. There are sections like capital gains that can hit you with a bookful of clauses.
http://www.treasury.gov.za/documents/national budget/2013/sars/Budget 2013 Pocket Guide.pdf

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MTC is likely the bulk of your medical savings. Fixed amount per person, so you gain a lot from it, especially if your medical aid is fairly cheap. If you're in the 30% bracket (Around R22k/month), that's effectively R806 per primary member per month that's tax free. Total per primary member back in your pocket? R2904.

The deductions on the other hand have to be quite substantial - 7.5% of what's left of your income at a certain point in the calcs. Using the R22k example, that means you'll need almost R20k of medical expenses NOT covered by your medical aid to even start deducting anything... Your year needs a throughly brown fan if that's the case.

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A great tax cutter is the RA and Pensions. Unlike normal investments, the gains aren't taxed, and you effectively get your tax back the year you pay it. Using the R22K/month example, R40k a year is tax free if you invest it all using an RA. That's R12k you get back in cash (or don't pay) in tax when you're in the 30% bracket, and might actually push your total back into the 25% bracket.

While that R40k isn't in your pocket today it's still giving you R12k you didn't have and all round a good idea to have for when you're older or if the fan turns brown...
 
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Pyro said:
http://www.treasury.gov.za/documents/national budget/2013/sars/Budget 2013 Pocket Guide.pdf

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MTC is likely the bulk of your medical savings.

---

A great tax cutter is the RA and Pensions.
Click to expand...

Thanks :)

Referring to that above...

1. Thanks for the link, will definitely read that before I submit my next tax return.

2. If you don't have medical savings at all, just a hospital plan, is there any benefit there?

3. Yeah I thought so, really need to get an RA going. I planned to start when I was 25. Three years ago :/
 
2 - I would assume so, tax wise, but that can be a horrible way of looking at it. Unless your medical spending is massive compared to your salary, the deduction does not apply at all.

Also - you might get 30% (tax bracket) of what you spent on medical back, but you'll still be paying the other 70% from your pocket.

Say you spent R40k on medical by going R1000/month cheaper to be on a hospital plan.
You pay R20k + R14k (70% of R20k).
You get R6k (30% of R20k) back.
You saved R12k on premiums.

So you're still down R20+16-6-12=R18k!

If your comprehensive medical aid would've covered only R22k of the R40k otherwise, you break even.

Personally, I'd rather not have the deduction to save on a nightmare of receipts should I get audited than maybe save a few bucks on tax.
There's also quite a delay between the expense and the tax return, so you're cash out of pocket for a significant time.
 
Hmmm... fair enough.

The problem I have is that my company pays for my hospital plan. It covers asthma meds, as that falls under chronic medication.

Everything else I take isn't covered, nor are doctors visits, etc.

So the only way I'd be able to get anything significant out of claiming is if I:

- Increase my medical to ones of those ones with a savings plan, or more.
- Keep track of all my expenses
- Hope that it's significant enough to warrant a claim

Am I right?

Edit: Just noticed your post time O.o
 
mr_norris said:
Hmmm... fair enough.

The problem I have is that my company pays for my hospital plan. It covers asthma meds, as that falls under chronic medication.

Everything else I take isn't covered, nor are doctors visits, etc.

So the only way I'd be able to get anything significant out of claiming is if I:

- Increase my medical to ones of those ones with a savings plan, or more.
- Keep track of all my expenses
- Hope that it's significant enough to warrant a claim

Am I right?
Click to expand...

I'm not sure if the savings plan would count as covered by medical aid.

mr_norris said:
Edit: Just noticed your post time O.o
Click to expand...

One of those get home, crash early, wake up in the middle of the night type of weeks :p
 
Another way to benefit from income tax is to date a CA. :p
 
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