By Rob Cooper, Softline VIP payroll and legislative expert
Proposed changes to the Income Tax Act were issued for public comment in July 2012, some of which have a direct impact on employers and computerised payroll systems.
One change in particular constitutes a major shift in approach from the legislators, but first, a brief overview of the other changes.
Medical Tax Credit Principle to be Extended
From March 2012, we saw the introduction of medical tax credits (tax rebates) for employees under 65 years of age who contribute to a medical scheme. Changes were also made to the income tax relief granted on assessment to individuals for their out-of-pocket medical expenses subject to certain conditions.
The draft changes now extend the medical tax credit principle for contributions to include those employees who are 65 years of age or older. The values proposed for their tax credits are the same as those currently used for under 65 year old employees, and are based on the number of dependents.
Then the deduction system of income tax relief for out-of-pocket medical expenses has been replaced by a medical tax credit system, with varying degrees of relief for over and under 65 year old employees, and for those who are disabled or with a disabled spouse or child dependent.
What is of concern is that the tax relief granted for medical contributions and out-of-pocket medical expenses has been whittled away by the changes made last year and the proposed changes in the draft legislation, particular for those taxpayers who earn above the 30% marginal tax rate.
Individuals over the age of 65 and those who are pensioners in particular have been hit hard in recent years by dividend tax changes and interest tax relief amongst other measures. A further reduction in the assistance from the state for medical contributions and medical expenses is going to hurt these individuals.
The same can be said for families with a disabled person – surely these individuals deserve more support, not less?
Employment-related Insurance Policies
The taxation of employer-owned insurance policies that impact on employees has been the subject of complex changes to the law over the past two tax years. Just when it seemed that the dust had settled, the draft legislation proposes some more changes that are too complex and too confusing to discuss here.
The words “unintended consequences” again come to mind …
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