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Thread: Medical Insurance as opposed to a Registered Medical Aid

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    Medical Insurance as opposed to a Registered Medical Aid

    I have a questions that has stumped me and I can't find similar threads / cases.

    A tax payer (70 yrs old) has a Medical Insurance (specifically not a registered medical aid):
    (R50,000) Actual hospital bills paid during the year
    R65,000 Insurance payout received to cover those medical costs
    (R60,000) Medical Insurance paid during the year

    As from above, the tax payer suffered medical costs of R50,000. He paid medical insurance during the year totalling R60,000. He received insurance payouts during the year totalling R65,000 because of the medical costs he suffered.

    Because it's not a registered medical insurance he will not be able to claim the monthly medical allowance (or tax credits).

    My question is this, can you still claim all the medical expenses on his tax return (as he's older that 65yrs) even though his medical insurance paid him out?

    As the insurance is not tax deductible, I presume the insurance payout is not taxable either. If that is true, then he could still possibly claim those actual medical costs incurred?

    Thanks,
    Gary

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by LotteTorkilson View Post
    He paid medical insurance during the year totalling R60,000. He received insurance payouts during the year totalling R65,000 because of the medical costs he suffered.
    Assuming this was a much higher than normal claim year, let me just soak in the irony here. (Was this a good year or a bad year )

    Moving on, the answer probably depends on what the insurance is actually paying out for. Most medical insurance schemes I've seen pay out for events, not medical procedures per se. It's going to depend on the fine print.
    Quote Originally Posted by LotteTorkilson View Post
    As the insurance is not tax deductible, I presume the insurance payout is not taxable either.
    That could be the crux - is the insurance payout taxable income or not? Unless there is a direct corelation between the medical costs incurred and the insurance pay-out, surely the actual medical costs remain in the tax payer's hands.
    The trouble with opportunity is it normally comes dressed up as work.

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    Thanks for the input Dave A.

    I've investigated what seems to be the correct way of handling this as per the Income Tax Act which I'll share below as I'm the one that started the query

    Summary:
    • Actual medical costs incurred – can be claimed as additional expenses on your tax return
    • Insurance payouts received relating to Medical Claims – Must be included as income on your tax return and taxed accordingly
    • Insurance premiums paid – not tax deductible

    Detail:
    Section 8(4)(a) of the Income Tax Act, 1962 states that you have to add to your taxable income any expenses recovered or recouped that were allowed as a deduction as per various sections of the Act, including s18 (medical expenses).

    Because the final event that triggered the recovery of the medical insurance costs was when you incurred the medical expenses (s18), the insurance claims would need to be added to your taxable income. So, you would include both the total medical expenses, as well as the insurance refunds you received.

    The Act also only states that registered medical funds can benefit from the medical deductions, so unfortunately the insurance premiums are not claimable.

    The reason why other insurance refunds are not included in your taxable income is because of s8(4)(a)… only recoveries relating to expenses that you can deduct are included in your taxable income.

    Thanks,
    Gary

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    Site Caretaker Dave A's Avatar
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    And now you see why I find the situation so ironic - R60 000 in insurance premiums paid with no tax relief coming back as taxable income. How does that compare to if you had just put the money into savings?
    The trouble with opportunity is it normally comes dressed up as work.

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    Email problem Phil Cooper's Avatar
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    Sounds high. You can get a full hospital plan which would give higher benefits than the very limited R60,000 mentioned at about a quarter of the premiums.

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    Diamond Member wynn's Avatar
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    Phil
    give us an Idea of what the premiums for a decent hospital plan for say 50 and 60 year old would be and what would be excluded (62 and type 2 diabetic)?
    you don't have to name names just a guideline!
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    Email problem Phil Cooper's Avatar
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    Hi

    Regretfully I don't do medical covers, but would recommend that you ask a medical aid Broker to get quotes.

    However - remember that, in terms of legislation, age is immaterial in rating - you pay the same if 20 or 80.

    And Chronic Conditions - which include Diabetes, MUST be paid in full by the scheme.

    If you look at Discovery website, for their basic hospital plan you pay around R1,200 per month - and around R1,100-odd with Compcare, who are very good.

    HOWEVER - because of the fact that he has not had a medical aid for years (?) they are entitled to load the premiums by up to 25% - and they will! There may also well be a 3 month waiting period before it kicks in.

    And - more important - he will be able to claim tax breaks on medical aid premiums, which reduces the effective cost in the end.

    Good luck!

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    Hi Wynn

    For a basic hospital plan around R1000/month per person (covers only costs when you are booked into hospital, and not all of them). There can be loadings of up to 75% if you have not been on a medical aid before and waiting periods of either 3 months (pay premiums without benefits) and/or 12 months condition specific. Please send me a pm if you would like a quote.

    Regards

    Bruce

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