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Up to now, he says, taxpayers qualified for a set monthly deduction on their taxable income, based on their family composition. It was contended that these monthly deductions were more rewarding to wealthier taxpayers.

As an example, if you pay tax at a rate of 40%, your medical tax benefit is 40% of the set deduction (R720 x 40% = R288), whereas a taxpayer with a tax rate of 18%, only receives (R720 x 18%= R129).

"The new system ensures the same monetary benefit to everyone in the form of tax credits. This will operate in a similar fashion as the tax rebates afforded to individuals in that it reduces the tax payable by an individual (and not the taxable income). The tax credit amounts have been set to closely replicate the level of benefit a taxpayer in the 30% tax bracket was receiving within the 2011/2012 tax deduction system. Therefore individuals in lower tax brackets will receive slightly more than before and individuals in higher tax brackets slightly less in monetary terms," says Lombard.

He adds: "The 2012 Budget again asks us to tighten our belts, focus on savings and to contribute a little more to the state coffers. Consumer Price Inflation, which on the back of rising food and petrol prices, is expected to increase to 6.2% this year, before tapering off to 5.1% in 2014.

"Increases in sin taxes will be between five and eight percent this year and is always seen as a positive re-enforcement of moderation, however in context this is one example of how consumers will have less income available for all household expenditure, which also includes medical cover."

Medical cover, Lombard points out, can easily be up to 10-15% of the average family's monthly household expenses, so consumers are encouraged to plan for this, as if you would your normal budget.

As announced in last year's budget, income tax deductions for medical scheme contributions for taxpayers below 65 years will be converted into such credits. Monthly tax credits will be increased from R216 to R230 for the first two beneficiaries and from R144 to R154for each additional beneficiary with effect from 1 March 2012.

PwC says it is enough of a struggle to have a handicapped child, particularly where that child requires significant medical support, well in excess of any normal level of expenditure. In the past, these costs have been fully tax deductible, which has made caring for the child more affordable. From 1 March 2014, however, expenses relating to a handicapped person will no longer be deductible but to the extent that expenses exceed three times the total allowable tax credits will be converted to a tax credit of 33,3%. For a higher rate payer with medical costs of R100,000 per annum, the credit will be R16 740 as opposed to the tax value of the deduction of R40,000.

"This will come as a severe blow to those providing medical care to their handicapped loved ones and unfortunately may affect the quality of the care that can be afforded," says PwC.
 

Back to Budget 2012 Special Report

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