Question:
I earn about R14 000 per month with no benefits whatsoever. I contribute to my own medical aid (hospital plan) and retirement annuity (RA). I'm about to register with SARS and would like to know how to go about getting back some tax because of my RA and medical aid contributions. I'm completely baffled by tax law.

Answer:
It is said that there are two certainties in life — death and taxes. But before we go on a witch hunt for the grim reaper of our hard earned money, let’s tip our hats ever so slightly to the taxman who has, over time, offered up some meaningful tax deductions that have undoubtedly eased the burden while ensuring we invest sensibly in our health and future financial wellbeing.

Being baffled by tax law is something that is not unique to you, but this does not make the process of understanding or claiming these deductions out of reach to the average South African. On the contrary, SARS has made some significant strides in making the tax laws and, more importantly, the tax submission process much simpler.

Although there are some changes currently being tabled in the Taxation Laws Amendment Draft Bill, the essence of how these deductions work and the limits should be unaffected until the next budget speech.

When it comes to medical aids, the following applies:

The allowable income tax deduction for contributions made by members to their medical schemes for the 2009/2010 tax year:

• R625 for each of the first 2 beneficiaries; and

• R380 for each additional beneficiary.

And for retirement annuities, the general guidelines provide the following:

Retirement Annuity contributions are deductible of the greater of:

• 15 percent of non-retirement funding taxable income; or

• R3500 minus any allowable pension fund contributions; or

• R1750

In addition to this, any contributions not claimed in the previous year may be included to the deduction to a maximum of R1800.These figures are deemed as an annual amount.

One of the mistakes often made is that one assumes that this deduction means that the full contributions will be 'refunded' come tax submission time. It is important to note that the contributions made will be deducted from one’s gross income before a taxable amount is arrived at. In other words, SARS will tax an amount equal to your salary less these deductions resulting in a more favourable tax rate.

Now this may be all well and good but your question remains — how does one ensure that SARS takes cognisance of these amounts? The answer is simple, in the same way that your employer will give you an IRP5 at the end of the tax year to reflect your income and tax paid, so too your medical aid and investment company (that you are a retirement annuity member through) are compelled to furnish you with an Income Tax Certificate. If you do not receive these automatically, it would be prudent to contact the respective company and request a duplicate original. These can then be given to your tax practitioner so they are in a position to capture and submit these accordingly.

All said and done, it may be a time where we can drop the pitchfork and shake this grim reapers hand. Then, take a close look at these types of scenarios that carry weight and ensure that we have considered all such factors that impact on our current and future financial well-being. This then, once again, highlights the invaluable role of a professional financial planner to utilise these types of concessions in constructing a meaningful financial plan.

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals’ personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.

If you would like acsis to put you in touch with an independent financial planner, click here!

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