With new legislation due to be gazetted this year on taxation regarding people with disabilities, Rolling Inspiration recently visited the South African Revenue Service (SARS) at their Pretoria offices to find out exactly how people with disability will be taxed - or not taxed
Section 18 of the Income Tax Act No. 58 of 1962 allows taxpayers to deduct certain medical and disability related expenses from their income. In the 2008 Budget Tax Proposals, the then Minister of Finance, Mr Trevor Manuel, announced changes to this section of the Act. These changes came into operation on 1 March 2009 and are applicable as from the 2010 year of assessment.Koenraad Burger, Legal Advisor: Legal Delivery Support and Partners (Gauteng-North), Nathi Nxele and Adrian Lackay, Spokesperson for the SARS, explained the new legislation to us and how it will work.
The amendment provides for a more widely accepted and understood definition of “disability” instead of the previous term, “handicapped”.
Prior to the amendment you could only claim your medical expenses (inclusive of VAT) in full if you were regarded as “handicapped” under the law, (unless the taxpayer was older than 65 years of age).
But the categories regarding this term “handicapped” were very limited. You had to be certified as either blind, deaf, confined to a wheelchair, in need of an artificial limb or suffering from a mental illness.
One provision that has not been changed is that if either the taxpayer, or their spouse or child is a person with a disability then the medical expenses of the entire family are deductible in full. This means that if any of the family members becomes ill the consultation costs of the doctors, and any prescription medication costs, will be deductible in full.
With the amendment, the criteria for diagnosis of disability focus on the impact of the impairment on a person’s ability to perform their daily activities and not the diagnosis of a medical condition.
Disability is now defined broadly to mean “a moderate to severe limitation on a person’s ability to perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment lasting more than a year and certified by a duly registered medical practitioner.”
The practitioner must be registered with the South African Council of Health Professionals and trained to deal with the applicable disability.Prior to the amendment, it was also not always clear which expenses related to disability would qualify for a tax deduction.
Quite often, a taxpayer would incorrectly claim for the cost of buying a motor car rather than the cost of modifying the vehicle to cater to his other disability.
The amendment will help reduce any uncertainty regarding which types of expenses can be claimed for and the extent to which they can be.
To this end, the regulations of the Act will now contain a list of qualifying expenses relating to physical impairment and disability.
In terms of the list it is important to note that a prescribed expense must be necessary for the alleviation of restrictions on the person’s ability to perform daily functions. For example a wheelchair user who buys a hand-held GPS will not qualify for a tax deduction as this is not directly connected to the person’s disability. However, a visually impaired person who buys a GPS may qualify as it directly affects their ability to perform daily functions.
The list of expenditure includes:
- Attendant care expenses
- Travel and other related expenses
- Insurance, maintenance, repairs and supplies
- Artificial limbs/organs and other
- Aids and other devices (excluding motor vehicles, security systems, swimming pools and other similar assets)
- Products required because of incontinence
- Service animals
- Alterations or modifications to assets acquired or to be acquired SARS explains that while the cost of building a pool is not deductible, the costs of modifications to the swimming pool may be. So, if you need a hoist to gain access to your pool, that is deductible. The same is true for a motor vehicle. The cost of purchasing the vehicle is not deductible but the cost of modifying it is. The principle here is that your disability has led you to incur the expense. Salient features of the amendment include:
- Taxpayers who have been certified as having a disability, or whose spouse or child/children have a disability, will now be able to claim the qualifying expenses under section 18 against their income, inclusive of VAT, in full. As such it is important that all qualifying persons who in the past claimed expenses as a “handicapped person” and all persons who now qualify for the first time for the deduction must have their disability certified by a registered medical practitioner before they can claim the qualifying expenditure in full.
- The certification is done annually except for those persons with a permanent disability.
- The certificate need not be submitted with your tax return but must be retained together with other pertinent supporting documentation and should be readily available when requested by SARS.
- Regulations to the Act will now prescribe a list of qualifying physical impairments and disability related expenses.
- For forms of physical impairment other than a disability, the claims for expenses will be limited to amounts in excess of 7.5% of the taxpayer’s taxable income. Physical impairment in this regard means a disability that is less restraining than a disability as defined (that is, the restriction on the person’s ability to function or perform daily activities is below a “moderate to severe limitation”).
The list is in the form of a discussion paper, but the basis for it is law. When the law changed on 1 March 2009 it allowed SARS to make up the list and put it out for comments with a deadline date of 27 November 2009. SARS is presently working through the comments it received – which it says were positive overall – and hopes to have the list and criteria published in the Government Gazette this year.
Brian, from Sheer Mobility is excited about the new legislation but with reservations.
“Government recognises this along the supply chain. For example, there are no import duties on disability devices.”
(Claiming back VAT) “... is an important consideration from SARS, however I would still like to see disability devices dealt with (in terms of tax) in the same manner in which certain basic food stuff is – ie no VAT applies.”