Tag Archive: medical aid


Finance Minister Pravin Gordhan delivered his Budget Speech on 26 February, favouring consistency and steadiness over change and fireworks ahead of the national election on 7 May.

Some tax relief for tax payers in the 2014/15 Budget Speech – 40% of the tax relief was allocated to those who earn up to R250,000 per annum, meaning individuals earning more than R250,000 per annum will receive a little less of the allocated tax relief pool.

Though some commentators had speculated that high earners would need to pay higher income tax, the Minister left income tax rates untouched, says Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR. The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R174,550) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R673,100).

Tax credits for medical scheme contributions

Effective from 1 March 2012, the medical aid capping system was replaced with a tax credit – bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners.

In the new tax year, commencing 1 March 2014, monthly tax credits for medical scheme contributions (reduction of tax payable) have been marginally increased from:

  • R242 to R257 for the main member and the first dependent on a medical scheme
  • R162 to R172 for each additional beneficiary on the medical scheme

The medical aid tax credit system allows a reduction on income tax and does not reduce taxable earnings as the medical aid deduction system allowed in the past.

“The credit system is a more fair approach to providing tax relief as each individual contributing towards a medical aid fund will receive equal relief as it is not based on annual earnings. Whether an individual earns R250,000 per annum or R2,500,000 per annum, the income tax liability will be reduced by R257 for each of these individuals with at least a single beneficiary on the medical aid fund.”

From the 2014/15 tax year, medical aid contributions by people older than 65 will also be subject to the medical aid tax credit system. Up until now, those contributions were fully tax deductible. Effective from 1 March 2014, their contributions will also be subject to the medical aid tax credit system.

Is it a fringe benefit?

The company contribution towards an employee’s medical aid yields a taxable fringe benefit.

Generally, any payment made by an employer on an employee’s behalf, must be included in an individual’s taxable remuneration, before calculating the final PAYE deduction. Only pension and provident fund contributions are still exempt from the rule until 1 March 2015.

Regardless of an employee’s age or employment contract conditions, the medical aid contributed by an employer, whether in cash or as a package component directly to the fund, must be treated as a taxable fringe benefit.

The contribution paid by the employer will be subject to employee’s tax and contrary to popular belief, there is no way to structure a salary package to bypass the fringe benefit.

During the 2012/13 year of assessment, 76% of all fringe benefits reported on tax certificates were medical aid contributions made by employers on behalf of their employees.

Medical Aid Contributions must be reported on the employee’s tax certificate

As part of the Employer Filing season, each company is responsible to issue their respective employees with a tax certificate.

Medical Aid Contributions, both the employee and employer contributions must reflect on the employees tax certificate (IRP5/IT3A). If you’re making use of an automated payroll system, the codes are already loaded for you. In addition, a company is making use of an automated payroll system, they can import a payroll file with all the filing requirements directly into the e@syFile™ Employer system and the payroll EMP501 Reconciliation Report to complete the PAYE, SDL and UIF reconciliations. Van der Watt points out that this saves businesses considerable time and cost compared to manual calculation and capturing.

If you’re making use of a manual payroll system or payroll spreadsheets, please make use of the following codes:

  • Source code 4005 for employee and employer contributions
  • Source code 3810 for the taxable fringe benefit equivalent of the employer’s contribution
  • Source code 4116 for tax credits allowed

How can an automated payroll system make your business life easier?

To calculate the correct employee’s tax effect of a medical aid contribution, an employer must take the following into account:

  1. What is the total contribution that must be processed every month?
  2. How much of the contribution must be deducted from the employee’s gross income and how much is payable by the employer?
  3. Is the employer’s payment made as a cash contribution to the employee or paid directly to the medical aid?
  4. Remember to include any employer payment as a taxable fringe benefit when calculating the PAYE deduction for the month.
  5. How many dependents belong to the employee’s medical aid?
  6. Remember to constantly keep track of new dependents added or dependents removed from the medical aid policy.
  7. Remember to check for any contribution increases or change in medical aid cover that might affect the contribution value processed on the payroll.
  8. Don’t forget to calculate the medical aid tax credit after you have determined PAYE based on taxable earnings. The tax credit is based on the number of dependents and must reduce the PAYE value before you calculate the net pay.
  9. Every six months, you need to submit a PAYE reconciliation to SARS detailing the contributions, fringe benefits and tax credits related to medical aid contributions.

Payroll software will take care of the calculations and reporting of medical aid contributions and the PAYE effect thereof.

It is also important to keep in mind that effective 1 March 2014, employees aged 65 and older are also included in the medical aid tax credit system and their contributions may no longer be allowed as tax deductions. If you still make use of spreadsheet or manual methods of calculating PAYE, it is important to adjust your calculations to not only cater for new medical aid tax credits for the 2014/15 tax year, but also to keep in mind that you need to adjust the calculation for your employees aged 65 and older.

“Our software is designed to make your business life so much easier, so that you can focus on running your business. Let automated payroll solutions take care of the six major payroll acts and the ever-changing legislative plethora that governs payroll,” says Sumay Dippenaar, Marketing Manager at Sage Pastel Payroll & HR.

“There is no reason for businesses to rely on manual payroll spreadsheets since we offer automated solutions that are easy-to-use, smart and affordable, whether you deploy them on the desktop or in the cloud. Our subscription-based payroll solution allows you to pay low monthly fees with no upfront capital outlay, keeping your cash flow in mind.” With an online payroll solution, you only pay per payslip that you process. This pay-as-you-go model is cost-effective at R18 excluding VAT per payslip.

Example

Mr Jim Hardens is 67 years old, he earns a basic salary of R15,000 per month and the company contributes the full medical aid contribution of R1,000 on his behalf. He is the only member on his medical aid.

Below, please see how the calculation differs for tax year 2013/14 and 2014/15. Seeing that Jim is over 65 years, he also needs to be taxed on the medical tax credit system, effective 1 March 2014. Jim will enjoy a tax saving of R143.04 in the new tax year.

TAX YEAR 2014/2015
SALARY R 15 000
ADD MEDICAL AID FRINGE BENEFIT R 15 000 + R1 000 = R16 000
ANNUALISES TAXABLE INCOME R 16 000 * 12  = R192 000
TAX AS PER SARS TABLES R 192 000 – R 174 550 = R 17 450 * 25% + R 31 419 = R35 781.50
LESS PRIMARY REBATE R 35 781.50 – R 12 726 = R 23 055.50
LESS SECONDARY REBATE (FOR EMPLOYEES OVER 65 YRS) R 23 055.50 – R 7 110 = R 15 945.55
DEANNUALISE R 15 945.55/12 = R 1 328.79
LESS MEDICAL AID TAX CREDITS R 1 328.79 – R257
PAYE FOR THE MONTH R 1 071.79
TAX YEAR 2013/2014
SALARY R 15 000
ADD MEDICAL AID FRINGE BENEFIT R 15 000 + R 1 000 = R 16 000
LESS TOTAL MEDICAL CONTRIBUTION R 16 000 – R 1 000 = R 15 000
ANNUALISES TAXABLE INCOME R 15 000 * 12 =  R 180 000
TAX AS PER SARS TABLES R 180 000 – R 165 600 = R 14 400* 25% + R 29 808 = R 33 408
LESS PRIMARY REBATE R 33 408 – R 12 080 = R 21 328
LESS SECONDARY REBATE (FOR EMPLOYEES OVER 65 YRS) R 21 328 – R6 750 = R 14 578
DEANNUALISE R 14 578 / 12
PAYE FOR THE MONTH R 1 214.83
TOTAL SAVING R 143.04

 

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>Attend a Budget Speech Seminar, everything explained in laymen’s terms

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>Everything else you need to know

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For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn. To read more about the upcoming budget speech, click here.

By Karen Schmikl, Legislation Manager at Softline VIP, part of the Sage Group plc.

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Quite a few changes were made during Finance Minister, Pravin Gordhan’s Budget Speech on Wednesday, 22 February 2012 that will have a direct impact on payroll administrators across South Africa.

Medical Aid

The most noteworthy is a change in the taxation of medical aid contributions from March 2012.  Payroll administrators will have to ensure that their payroll systems are updated as from 1 March 2012 to reflect the changes stipulated. Not implementing these changes in the first period of the new tax year will result in incorrect PAYE, SDL and UIF contributions.

Medical tax credits replace the medical aid cap amounts used over the past few years.

  • Individuals who are 65 years and older still have the benefit of a medical aid tax deductible deduction, subject to no limit.
  • Employees who are younger than 65 however, no longer have the benefit of a medical aid tax deductible deduction. They do however qualify for a monthly medical tax credit (MTC).
  • The MTC will be deducted from the tax calculated for the employee for each month the employee contributes to a medical scheme, reducing the employee’s tax due each month.
  • The MTC is calculated in relation to the number of beneficiaries on the medical aid – the values are R230 for the main member, R230 for the first dependent and R154 for each additional dependent

The result of this change is a more equitable benefit for all individuals who belong to medical aids. Lower income employees will ‘see’ a greater tax benefit than higher income employees when comparing February and March tax amounts.

Tax Tables

The tax tables for individuals and special trusts for the year ending 28 February 2013 were updated.

Taxable Income (R)  Rate of Tax (R)
0 – 160 000 18% of taxable income
160 001 – 250 000 28 800 + 25% of taxable income above 160 000
250 001 – 346 000 51 300 + 30% of taxable income above 250 000
346 001 – 484 000 80 100 + 35% of taxable income above 346 000
484 001 – 617 000 128 400 + 38% of taxable income above 484 000
617 001 and above 178 940 + 40% of taxable income above 617 000

The tax rebate amounts have also been changed.  The primary tax rebate amount has been adjusted to R11 440, while a secondary rebate for persons of 65 years and older is pegged at R6 390.  A tertiary rebate for persons of 75 years and older is set at R2 130.

The adjustment to the tax threshold amounts, effectively nullified Standard Income Tax on Employees (SITE) limits.  Below the age of 65, the tax threshold has been set at R63 556; Ages 65 to below 75 now have a tax threshold of R99 056; while Ages 75 and over have a tax threshold of R110 889.

Subsistence Allowance
An employee is entitled to receive a subsistence allowance when the employee is obliged to spend at least one night away from his or her usual place of residence.  The value of the deemed allowance or advance where the accommodation is in the RSA has been amended to R303 per day for meals and incidental costs and R93 per day for incidental costs only. The schedule of rates for accommodation outside the RSA will be gazetted towards the end of the month.

Travel Allowance

Travel allowance costs have also been adjusted.  The SARS deemed rate per kilometre increased from R3.05 to R3.16.  The fuel and maintenance cost values have furthermore been amended and it is advisable to recalculate the value of all employee travel allowances from March 2012.

Value of the vehicle (incl. VAT) Fixed cost Fuel cost Maintenance cost
 (R) (R p.a.) (c/km) (c/km)
0 – 60 000 19 492 73.7 25.7
60 001 – 120 000 38 726 77.6 29.0
120 001 – 180 000 52 594 81.5 32.3
180 001 – 240 000 66 440 89.6 36.9
240 001 – 300 000 79 185 102.7 45.2
300 001 – 360 000 91 873 117.1 53.7
360 001 – 420 000 105 809 119.3 65.2
420 001 – 480 000 119 683 133.6 68.3
exceeding 480 000 119 683 133.6 68.3

The changes lined out in Finance Minister, Praveen Gordhan’s Budget Speech will have far reaching effects on any payroll system.  It is advisable for employers to take note of these changes and to confirm that they are being applied to their payroll system in order to keep the company current and up to date with legislation.

Finance Minister Pravin Gordhan delivered a safe, no real surprises budget [yesterday] ([Wednesday] 22 February) with R9.5-billion personal tax relief achieved by increasing the personal tax brackets. This brings the primary annual tax rebate for individuals under the age of 65 to R11 440, for individuals aged between 65 and 75 to R6 390 and those aged 75 and older to R2 130.

A key feature of the budget is that tax revenue stabilised at about 25% of South Africa’s gross domestic product (GDP). Overall revenue was slightly lower than the estimate in February last year and the revised estimate for 2012/13 is R739-billion, which is R10-billion higher than projected last year. Also pleasing was reductions in the rates of tax on small businesses and in the compliance burden on micro businesses.

It is proposed that from March 2014 an employer’s retirement fund contributions on behalf of an employee will be regarded as a taxable fringe benefit in the hands of the employee. Individuals will be allowed to deduct up to 22.5% of the higher taxable income or employment income for contributions to pension, provident and retirement annuity funds to a maximum of R20 000 and an annual maximum of R250 000. For individuals of 45 and over the deductible amount is up to 27.5% with a minimum annual deduction of R20 000 and annual maximum of R300 000.

There is a major change relating to medical aid where from 1 March 2012 the capping system will be replaced with a medical aid tax credit, bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners, a move in line with international best practice. The medical aid tax credit is R230 a month for the first two beneficiaries (including the principal member) and R154 for each additional dependent thereafter. Taxpayers over the age of 65 will receive their full medical aid contribution as a tax deduction in 2014.

Comments Grant Lloyd, managing director of payroll and HR software specialist Softline Pastel Payroll, part of the Softline and Sage Group plc: “The medical aid tax credit system will likely result in lower earners receiving greater benefits, which is a good thing.”

He adds that the Site tax portion of PAYE will fall away, making payroll administration easier.

“Secondary Tax on Companies (STC) will be terminated on March 31 this year and a withholding tax of 15% on dividends is to be introduced on April 1. The tax will be withheld on payment, not on declaration. South African branches of foreign resident companies are exempt from STC.”

Capital gains tax rates have effectively been increased to 13.3% for individuals, 18.6% for companies and 26.7% for Trusts, effective March 1.

Most individual taxpayers will be affected by the introduction of a 20-cent levy on fuel and an 8-cent levy for the Road Accident Fund.

To assist SME businesses with the changes outlined in the new Budget, Softline Pastel Payroll is incorporating all of the Budget changes to tax bracket values, medical aid benefits, and tax relief rebates.

“Automated Payroll and HR software ensures that payrolls are accurate and legally compliant the moment the new Budget stipulations take effect in the new tax year,” says Lloyd.

To find out how the Budget Speech affects your pocket, visit www.pastelpayroll.co.za and enter your current monthly salary and allowances in the online Pastel Salary Tax Calculator.

ISSUED BY: COPYWISE

ON BEHALF OF: SOFTLINE PASTEL PAYROLL