As mentioned in our previous newsletter, the “cap” tax relief will effectively fall away and be replaced by a tax “credit” system from March next year. In essence, tax relief will be applied to medical aid contributions by means of a tax rebate instead of reducing remuneration by the value of the cap amount.
Medical Tax Credits
The Fourth Schedule to the Income Tax Act, No 58 of 1962, currently allows an employer, when determining an employee’s tax payable, to take into account any contributions paid by the employee in respect of the year of assessment in respect of the employee, their spouse and any dependents of the employee, as defined in Section 1 of the Medical Schemes Act. In addition, employers are currently allowed to deduct contributions limited to the capped amount in respect of medical scheme contributions paid by employees under 65 years.
With effect from 1 March 2012, all medical scheme contributions must be treated as follows:
- An ‘under 65’ employee is entitled to the tax credits in respect of medical scheme fees paid by the employee.
- The tax credit amounts to:
- R216 each per month for contributions made in respect of the employee and one dependant, plus
- R144 per month in respect of each additional dependant.
A ‘65 and older’ employee is allowed the full medical scheme contribution paid by the employee as a deduction from remuneration.
The medical aid parameters currently used to calculate the allowable Medical aid deductions will be amended to comply with the new legislation. These changes need to be implemented after the last February 2012 payroll run, but before the first March 2012 payroll run.
There has been no further update on the proposed reforms regarding taxation and administration of retirement funds, other than the fact that they have been postponed until later further discussion has taken place. At this stage there is no indication as to whether or not the proposed reforms will be effective from March 2012 or a later date.
The Youth Subsidy scheme proposed in the budget (Effective March 2012) has not been finalised yet. There has been much “noise” about this in the press and on TV in recent months so something is very definitely due to happen. Let’s hope sanity prevails and we don’t get given only a month or two to implement.
The National Health Insurance scheme also proposed for implementation in March 2012 has not been included in the draft amendments. Again nothing has been finalised here in respect of how Employees on the payroll or the running of payroll systems will be impacted.
All of the above-proposed changes to legislation will have an impact on Employers and Employees somewhere, somehow. The sooner we understand exactly how these are going to be applied, the more opportunity we will have to understand their impact from a tax perspective and how best to implement these changes in the payroll – and of course what to tell our Employees. Through the Payroll Authors Group we regularly engage with SARS and other relevant entities in an attempt to gain clarity on these issues but unfortunately “the wheels of government often turn very slowly!”
We will let you know as soon as we get some clarity and direction.