Is medical aid gap cover taxable?
Important:
This answer is based on tax law for the tax year ending 28 February 2017.
Answer:
In terms of section 6B(1) ‘qualifying medical expenses’ (for purposes of the additional medical expenses tax credit) means “amounts (other than amounts recoverable by a person or his or her spouse) which were paid by the person”.
The SARS Guide on the Determination of Medical Tax Credits and Allowances states that “in order for the expenses to be considered deductible, the expense must not have been recoverable from the taxpayer’s medical scheme.” The Act however doesn’t refer to a medical scheme when the word recoverable is used.
We submit that the word must therefore take its ordinary meaning. The courts have only dealt with the words “recover of recoup” – see the Omnia Fertiliser case. The Oxford dictionary defines recoverable as “(Of compensation or money spent or lost) able to be regained or secured by means of a legal process or subsequent profits”. We submit that the recovery under the GAP scheme will indeed constitute an amount recoverable.
The problem is that the contributions to the GAP scheme doesn’t qualify under either section 6A or 6B. We are not sure if the taxpayer would be able to argue that, at least to the extent that the contributions were made to the GAP scheme, the will not be seen as a recovery. It comes down to the onus of proof.