4.6 Other Deductions (13)

Question 1

Other deductions

Answer 1

After calculating tax after allowable deductions there are further deductions which include
● Medical expense – tax credits
● Donations to public benefit organisations – s 18A

Question 2

The act provides for two types of taxpayers in relation to medical expense deductions

Answer 2

● Under 65 years
● 65 years and older and taxpayers under 65 if an immediate family member has a disability

The person paying the expense claims the deduction.
Amounts which are recoverable from a medical aid are not deductible.

Question 3

The following medical expenses are considered as qualifying

Answer 3

● Current contributions made to a medical aid scheme or to any similar scheme in another country during year of assessment
● Amounts paid to a:
- Medical practitioner, dentist, optometrist, homeopath, etc
- Nursing home, hospital, nurse, midwife or nursing assistant
- Pharmacist for prescribed medicines
● Payments necessarily incurred and related to a disability or physical impairment
● Medical expenses paid outside of SA

Question 4

Medical aid contributions tax credits – s 6A (under 65 yrs)

Answer 4

Taxpayers under 65 years of age may deduct fixed monthly amount of R347 each for taxpayer and first dependant and R 234 for each additional dependant.

Question 5

Other medical expenses plus excess medical contributions tax credits – s 6B (under 65 yrs)

Answer 5

Excess medical aid contributions and other qualifying medical expenses may be claimed as an additional tax credit.
Tax credit =
B - A + Other expenses
- 7.5% of taxable income
/ 4

A = 4 x Annual allowable tax credits (4 x 12 x (347 x 2) + (234 x number of additional dependents)
B = Total annual medical aid contributions (monthly amount x 12)

Question 6

Persons 65 and older or under 65 if an immediate family member has a disability

Answer 6

Make use of same formula to calculate medical aid and medical expenses tax credits
Same medical aid tax credits apply (R347 for first 2 and R234 for additional)
In addition these taxpayers will be entitled to a medical expense tax credit that is equal to =
Medical aid contributions - medical aid tax credits x 3)
+ other medical expenses
/ 3

Question 7

Disability means

Answer 7

A moderate to severe limitation on a person’s ability to function or perform daily activities.
Must last more than a year and be diagnosed by a registered medical practitioner.

Question 8

Donations to Public Benefit Organisations (part of allowable deductions) – S 18A

Answer 8

Donations made to any Public Benefit Organisation (PBO) are allowed as a deduction limited to 10% of a taxpayer’s taxable income after the deduction of allowable contributions to funds but before medical expenses and these donations.
Withdrawal lump sum benefit from a retirement fund may not be included in taxable income for this calculation.
Taxpayer must be in possession of a valid receipt.
Donations in excess of 10% tax limit may be carried forward and claimed in next tax year.

Question 9

Donations tax

Answer 9

Levied on net transfer of assets, only applies to SA residents and companies
Below 30 mill - 20% / over 30 mill - 25%

Question 10

Valuation of important donations

Answer 10

All make use of Table A (expected life) and Table B (present value)
- Valuation of usufructuary interest - right to use property without being owner
- Valuation of bare dominium - individual who owns property subject to usufructuary interest
- Valuation of annuity

Question 11

Valuation of usufructuary interest

Answer 11

1. Calculate annual value of interest (Fair market value x 12%)
2. Determine lesser of period between:
   - Life expectancy of donor - Table A
   - Life expectancy of recipient - Table A
   - Set period of usufruct - Table B
3. Determine present value of R1 for lesser period
4. Determine value of donation (Annual value x Present value R1)

Question 12

Valuation of bare dominium

Answer 12

1. Determine fair market value
2. Calculate value of usufructuary interest according to LE of usufruct
3. Determine value of bare dominium
   = Fair market value - Value of usufructuary interest

Question 13

Valuation of annuity

Answer 13

1. Determine annual value of annuity
2. Determine lesser period between
   - LE of donor - Table A
   - Set period of annuity
3. Determine present value of R1 for lesser period
4. Determine value of donation
   = Annual value x present value of R1