Sars clarifies its stance on medical expense claims

The South African Revenue Service (Sars) says there has been no policy change with regards to the risk treatment of medical expense claims.

Some tax practitioners have recently been caught off-guard after medical expense claims that were not paid by a taxpayer’s medical scheme were disallowed. Usually, tax certificates distinguish between medical aid contributions paid during the tax year and “claims not recovered from the scheme”. In the past, Sars generally allowed a medical tax credit for legitimate out-of-pocket expenses on submission of the tax certificate, but this year some tax practitioners have advised that the credit was only allowed if taxpayers also submitted the relevant invoices and receipts related to the amount reflected on their medical tax certificate.

While this is not an issue where taxpayers don’t have large medical expenses, it is of particular concern for some pensioners and taxpayers with disabilities.

Sars says the 2018 Personal Income Tax Filing Season marked the first year in which it pre-populated taxpayer medical aid information on the tax return pertaining to medical aid contributions, medical aid dependents and claims not recovered from the scheme altogether.

“The tax return submission by the taxpayer is therefore validated against this third-party data to ensure accuracy of taxpayer submissions.”

Sars says where taxpayers provide information that is contrary to the available third-party data, the taxpayer will most likely be flagged for a verification or audit.

“This is especially [likely] in instances where the out-of-pocket expenses being claimed are higher than what has been obtained from the third-party data source.”

Where taxpayers are flagged for a verification or an audit, they will be obliged to provide proof of all receipts to confirm that the out-of-pocket expenses were actually incurred. This is aimed at curbing potential fraud that may result in taxpayers requesting a refund due to these expense claims, even though they did not incur the expenses, Sars says.

The Tax Ombud, retired judge Bernard Ngoepe, found in 2017 that Sars unduly delayed the payment of legitimate refunds in certain instances. According to the Medium-Term Budget Policy Statement, the value-added tax (Vat) refund estimate for 2018/19 has been revised upwards by R9 billion and about R11 billion will be paid out to clear the backlog in Sars’s Vat credit book.

Sars says refunds that are legitimately due to taxpayers are not unduly or unnecessarily held back.

“Sars applies due diligence to ensure that such claims are legitimate in order to facilitate the timely payment of genuine refunds. Supporting documentation such as receipts to substantiate and verify the expenses not covered by the medical aid are requested only when the return is routed for further compliance intervention and risk mitigation. In this case, the taxpayer is required to provide such receipts to verify the expense claim.”

The tax season for non-provisional individual taxpayers closes on Wednesday, October 31. The deadline also applies to provisional taxpayers who choose to file at a branch, but provisional taxpayers who make use of eFiling still have until January 31, 2019 to do so.

Sars has assured taxpayers that its eFiling system is stable, despite recent speculation that it is on the verge of collapse.

“eFiling has experienced 99.7% uptime during Tax Season and is geared to receive the large volumes of returns that can easily spike to 150 000 submissions daily when Tax Season hits its last two days,” it said in a statement on Monday.

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