Some tax practitioners have recently been caught off-guard after medical expense claims that were not paid by a taxpayer’s medical scheme were disallowed. Usually, tax certificates distinguish between medical aid contributions paid during the tax year and “claims not recovered from the scheme”. In the past, SARS generally allowed a medical tax credit for legitimate out-of-pocket expenses on submission of the tax certificate, but this year some tax practitioners have advised that the credit was only allowed if taxpayers also submitted the relevant invoices and receipts related to the amount reflected on their medical tax certificate.

While this is not an issue where taxpayers don’t have large medical expenses, it is a significant concern for some pensioners and taxpayers with disabilities in particular. In some instances, it can be the difference between a refund and having to settle a tax debt, he says.

Independent personal tax specialist Bari Duvenhage says while SARS previously regarded the medical aid tax certificate as sufficient proof of claims not recovered by the scheme, there has been a sudden change in approach and it now also requires proof of payment.

Etienne Retief, chair of the national tax committee of the South African Institute of Professional Accountants, says in the past, some taxpayers have abused the system with regard to qualifying medical expenditure. SARS has become more wary of medical expenditure and has started to consider whether a specific taxpayer truly paid the expense and if it qualifies as a medical expense in terms of the tax rules. In certain cases, taxpayers have previously tried to claim for things like toothpaste or similar items. “I think SARS is just trying to close that gap of potential abuse,” he says.

The South African Revenue Service (SARS) says there has been no policy change with regards to the risk treatment of medical expense claims.

SARS says the 2018 Personal Income Tax Filing Season marked the first year in which it pre-populated taxpayer medical aid information on the tax return pertaining to medical aid contributions, medical aid dependents and claims not recovered from the scheme altogether. “The tax return submission by the taxpayer is therefore validated against this third-party data to ensure accuracy of taxpayer submissions.”

SARS says where taxpayers provide information that is contrary to the available third-party data, the taxpayer will most likely be flagged for a verification or audit. “This is especially [likely] in instances where the out-of-pocket expenses being claimed are higher than what has been obtained from the third-party data source.”

Where taxpayers are flagged for a verification or an audit, they will be obliged to provide proof of all receipts to confirm that the out-of-pocket expenses were actually incurred. This is aimed at curbing potential fraud that may result in taxpayers requesting a refund due to these expense claims, even though they did not incur the expenses, SARS says.

What documents should I keep to make sure I can claim all my qualifying medical expenses?

1.    Your Medical Aid Tax Certificates

2.    All invoices for your out of pocket “Qualifying Medical Expenses”

 What are Qualifying Out of pocket Medical Costs?

Out-of-pocket medical costs, as per SARS, are those expenses that you’ve paid for yourself, which have not been reimbursed from medical aid. (If you submit ALL your medical expenses to your medical aid, this amount is normally reflected on your tax certificate from the Medical Aid as 'claims not paid', 'amount not reimbursed' or something similar. Remember this won't include expenses you incurred but didn't submit to medical aid. You'll have to tally those up separately.) This doesn’t mean that you can include all and sundry from the pharmacy, though. SARS has certain restrictions on what qualifies as an out-of-pocket medical expense.

Examples of qualifying medical expenses are any amounts that were paid by you, as the taxpayer, during the year of assessment:

1.    For professional services rendered and medicines supplied by a registered medical practitioner, dentist, optometrist, homoeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist to you or any of your dependant(s)

2.    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

3.    For medicines prescribed by a registered medical practitioner and acquired from a pharmacist

4.    Medical expenses incurred and paid outside South Africa

It's important to note that “over the counter” medicines - such as cough syrups, headache tablets or vitamins don't qualify as medical expenses - unless specifically prescribed by a registered medical practitioner and acquired from a pharmacist.

Sources:

https://www.moneyweb.co.za/mymoney/moneyweb-tax/sars-clarifies-its-stance-on-medical-expense-claims/

https://www.moneyweb.co.za/mymoney/moneyweb-tax/has-sars-disallowed-your-medical-expense-claim/