Taxing Medical Matters – The law under the microscope and knowing your clients…

Much has been written of late about medical expenses. The article below is therefore not a paraphrased one of the law as contained in The Income Tax Act, No. 58 of 1962, as amended (the “Act”).

What has been notable from the articles is the apparent lack of any discussions about the complexities of the practical issues related thereto in order to attend to clients’ matters to the best possible professional standards. No pun intended but most apt to state when dealing with matters, we have a duty to care for our clients. The writer has been known to use the term “Intensive Tax Care” in this context.

In the writer’s experience, there are two key facets to carrying out the stated duty of care. Arguably, more than in other areas of tax law, it is critical that both are present. The writer submits the following as the two key facets:

1. Detailed, or microscopic, technical knowledge of all the applicable laws (as always the devil is in the detail!) AND how the practicalities interact with the complexities of the law, in force from time to time;

2. The old adage of knowing your clients cannot, in the writer’s opinion, be more apt when dealing with section 18 of the Act (medical expense deductions).

Addressing 1 and 2 above:

Technical and practical issues

In a recent article it was stated that “bad eyesight” and “hyperactivity” are NOT disabilities, as defined in our law, but physical impairments.

The important distinction between the two is that where a disability is present (the taxpayer, his or her spouse or child – the “family unit”) ALL qualifying medical expenses are fully tax deductible by virtue of section 18(2)(b) of the Act. Where a physical impairment exists without a disability and the taxpayer is not over the age of 65, section 18(2)(a) is in point – the so-called “capping” provision.

It is therefore of the utmost importance to understand and “get it right” as to whether a disability is present in the family unit. Providing a client with a verbatim quote from the Act (section 18(3)) helps not. We need, as tax practitioners, to know what, for example, a visual impairment is and what are mental illnesses. A knowledge of visual acuity and visual field is thus critical when assessing whether your client has a visual “disability”. It is clear that “armed” with this knowledge you would know that “bad eyesight” CAN be a disability. Medical research shows that more than 2% of our population have “bad eyesight”, or are classified as “blind”, as defined in our law.

A tax practitioner with practical experience in dealing with disabilities is unlikely to state that “hyperactivity” is NOT a disability. By “hyperactivity”, the writer herein assumes that the term is loosely used as a reference to Attention Deficit Hyperactivity Disorder, or ADHD. There are three issues here in determining whether ADHD can be a disability 1). is it listed as a mental illness on the DSM-IV-TR (The Diagnostic Statistic Manual of mental disorders, text revision of the fourth edition, 2). what is the persons GAF score (or Global Assessment Functioning score) and 3) is the impairment mild, moderate or severe.

ADHD is listed on the DSM-IV-TR. In every client case, the GAF score is below 60 – the score stipulated in our law. Also, in every case where ADHD has been diagnosed it has been classified as moderate to severe (for those tax practitioners who are not familiar with ADHD, medical research on ADHD will show that the debilitating effects of the disorder).

And since ADHD affects about 3% of our population it is important to “get it right” and to have “got it right” in the prior tax years. Objecting to prior tax years where you have not got it right is something the writer would advise that you consult your tax practitioner about.

There are many other complexities and practicalities (far too many to discuss herein) which a specialist in this area of tax law will encounter on a day to day basis. Bendels Consulting spends more than 75% of its time researching, understanding and working on medical issues. No the writers tax law practice is just that – not medical practitioners or medical experts, however, without a good understanding of medical issues it would be impossible to carry out our duties to the high standards which our clients deserve and rightly so expect.

Know your clients

As with all areas of tax law it is important to know your clients. When dealing with medical matters and disabilities there are a lot more complexities and dynamics which go into “knowing your clients”. Your client is the taxpayer but in this case just knowing him/her is not enough. To know that a disability exists (or may exist), the health of your clients spouse (if he/she is not a client of yours) or children is a lot more complex. If you don’t know that “bad eyesight” can be a disability or that ADHD is almost certainly a disability it is quite probable you will not get it right. How will you know what questions to ask? How can you advise your clients with a lack of knowledge as to what is a disability and guide them form there.

Tax practitioners may be interested (or concerned) to know that there are about 200 mental illnesses listed on the DSM-IV-TR. Dyslexia is not a mental illness (it is not on the DSM-IV-TR) but what about a communication impairment which is moderate to severe? Getting it wrong could be extremely costly as more than 5% of our population are dyslexic….

The percentage of affected taxpayers is substantial – just the three mentioned above is, conservatively, 10%. And that’s before touching on depression, hearing impairments, epilepsy, paraplegic, qualdraplegic, polio, down syndrome, cerebal palsy, epilepsy and the list goes on. Lest we forget, sensory impairments too.

So the stakes are high and it is writer’s opinion that it is not for the “jacks of all trades”. Or most certainly not for the faint at heart.

In summary, therefore, just a few comments – can’t scratch much of the “real” surface to getting it right in a short article. Experience and specialisation has been proven to be successful every day. The real success comes from identifying ALL expenses necessarily incurred in consequence of each disability. Again, day to day experience will mean that a tax practitioner is aware of the recommended therapies for autism, for example. Horse riding and music are well know therapies and have been successfully deducted on behalf of taxpayers.

A discussion on the law (section 18(1)(d) and case law) and practice of what is necessarily incurred is beyond the scope of this article. An article on this should follow in the not too distant future.

Lots to do to get it right for 2012 tax season and then correcting prior years. A full-time career for many….


Published Taxtalkblog

Leave a comment