Much has been written about the new tax rules relating to the tax deduction of all medical expenses where a “disability” exists within the taxpayer’s family i.e. taxpayer, spouse or child. The articles written on this subject include “Medical expense tax deductions – is the glass half full? (dated 10 march 2010) and “Tax and “disabilities” – enable the “disabled”” (dated 31 May 2010) (Both articles available on request from the Editor, TAXtalk)
Since the 2010 “tax season” has now commenced, taxpayers should be advised that if they wish to claim for all their medical related expenses, by virtue of the new “disability” provision contained in Section 18(3) of the Income Tax Act, the Commissioner’s prescribed form needs to be duly completed before a claim can be made when submitting 2010 tax returns. The prescribed SARS form is the Confirmation of Diagnosis of Disability, or more commonly referred to as the ITR-DD form. The said form does not need to be submitted with the tax return but must be retained in the event that SARS request the ITR-DD. In the writer’s experience, whenever a claim under the “disability” provision has been made, SARS have always requested the form to support the claim for the deduction of all medical related expenses.
The consequences of not having the ITR-DD duly completed is in most cases likely to be substantial. For many taxpayer’s, the 7.5% cap placed on the deduction of medical expenses (in the absence of the taxpayer being over 65, or the claim under the new “disability” provision) is just too high for them to benefit from any medical expenses they have incurred. For example, if a taxpayer’s taxable income was R2 million before medical expenses, he or she will only obtain a tax deduction to the extent medical expenses exceeds R150 000. The consequence, therefore, would be a tax cost to the taxpayer of 40% of R150 000 i.e. R60 000 if there was in fact a “disability “ within the family and the taxpayer did not obtain the ITR-DD dully completed. Taxpayer’s would also be well advised to seek specialist tax law advice from their advisors on this in order to fully maximize the claim for medical expenses.
There is a considerable amount of confusion regarding the completion of the ITR-DD among taxpayers, doctors (and whoever else can sign the form, such as duly registered OT’s, psychologists) and also special needs learning schools. The ITR-DD refers to diagnoses made in accordance with the DSM-IV-TR and requires knowledge, by the person signing the form, of the Global Assessment Functioning score, or GAF-score. Many doctors, psychiatrists, psychologists, paediatricians don’t use the GAF scoring system and experience has shown that few doctors know a lot about it. Doctors often, therefore, seek specialist tax law advice on this as in essence they are “signing-off” on a SARS tax document. They need to be sure what they are signing before committing themselves to duly completing the form.
Special learning needs schools also should be aware of the ITR-DD so that they can give some guidance to Parents as to the new rules and what needs to be done. It is gratifying to know that some special needs schools have gone out of their way to assist Parents in this regard. Such assistance by the relevant schools is greatly appreciated by the Parents as they are often able to get substantial tax refunds as a result of making the appropriate “disability” claim. Remedial school fees can be substantial and additional expenses necessary to raise a child with a “disability” such as autism, or asperger’s disorder can easily amount to over R150 000, in the writers experience. Approximately, 1 in 110 children fall within the autistic spectrum – or roughly 1%.
SARS are encouraging taxpayers to submit their 2010 tax returns as soon as possible and well in advance of the deadline dates. The writer encourages all his clients to do the same as the sooner the 2010 tax return is submitted, the sooner taxpayers can obtain their refunds as a consequence of maximizing their medical expense claims under Section 18 of the Income Tax Act. But, taxpayers must obtain their ITR-DD duly completed before making such a claim.
The term more haste less speed is thus perhaps a conundrum in these circumstances. Taxpayers who qualify under the “disability” provisions should speedily submit their tax returns but hastily obtain the ITR-DD dully completed before doing so.
Taxpayer’s are also reminded that if they have not made claims (or did not fully maximize their claims) under the “handicapped person” definition for prior-years, it is open to them to object to previous assessments within certain time limits and thereby potentially obtaining refunds for the respective preceding years of assessment, as appropriate.