|
|
|
|
|
|
| ||||
Stals shock - rates set to rise in wak... Denel gets lift from Eurocopter... US executives take home the fattest piec... Receiver has another tax-free target in ... Grip of five top SA conglomerates loose... Optimists take heart from dip in inflati... Black empowerment and unbundling rule me... Outrage at Telkom bid to take over the ... The battle for Midrand's big, big gaming... Cape leisure applies the black tin... Strong medicine cures Adcock... For 10 years the terror of businessme... |
Receiver has another tax-free target in its sights
The government aims to change the system which gives companies and consumers a tax break on medical savings schemes, writes PAT SIDLEY
The schemes, sold by medical aids and insurance companies, have until now enabled consumers to save money tax free to use for their health care. There are, however, no guarantees that this money will be used for health care, and the schemes have accordingly attracted the attention of the Receiver. By the same token, companies which have had to provide funding for the health-care needs of their pensioners and have put this money aside where it has not been taxed, will now find that those funds are subject to the same tax as a pension fund. In his Budget speech last month, Finance Minister Trevor Manuel referred to the medical savings schemes. He also indicated that the Katz Commission would release its report on the taxation of medical aids and benefit funds later this month. The situation until now has been that payments made by companies and consumers into medical aids or insurance companies specifically for health care have not been taxed. The money is taken from consumers and the company payroll and paid into the medical schemes before tax, and because it is for health-care needs it does not get taxed. This represents a saving for consumers and their employers worth up to R5-billion a year in tax. The Department of Health, which is redesigning controls for the financing of health care in the private sector, wants to encourage medical aids and their members to provide for health care from the cradle to the grave. The department has shown an antagonistic attitude to insurers who "cherry pick", effectively excluding from cover those who have become ill or are old. Insurers operating this way have encouraged their policyholders to put money aside for their care later in life and medical aids have persuaded consumers to save (either in trust funds or separate accounts) to compensate for any shortfalls in cover. Because of its tax advantage, these savings schemes have proliferated, and have not always been sold or operated by organisations seriously intent on funding health-care needs. Some estimates suggest that up to 1-million consumers have these savings schemes.
For companies, the issue is slightly different and far more complicated. Companies are allowed to put up to 20% of their payrolls into pensions funds for their employees, medical aids and the like. That money is not taxed. Companies are currently being advised by their accountants that if they are promising groups of employees such as future pensioners that their health-care needs will be funded by the company or the pension fund, they must provide for this and account for it in their books as a liability. These companies are told that, having reached the 20% limit for tax-free health care and pension-fund premiums, they should find other tax-free ways for providing for their pensioners' health-care needs. The Finance Department would, however, like to get its due from those funds and will be taxing health-care pre-funding vehicles as though the money is in a pension fund. This tax is exercised on the growth in the investments made by the pension fund.
Consumers who are being told by their insurers, medical aids or even some banks that they should subscribe to a medical savings scheme should rely on the fact that this will be taxed like any other savings scheme. They should also be aware that the department of health is committed to ensuring that employed South Africans have some form of cover for their health-care needs from the cradle to the grave, so they don't have to utilise the state's health-care services during hard times. In the end, consumers may want to have savings set aside for future health-care needs to top up whatever they have at present, but they will be taxed in some way. It is time consumers pressurised their employers, unions or medical aids directly so that they have some say in their benefits packages and the associated costs. Companies, too, which believe the insurers telling them that they have the tax-free vehicle into which they can put the estimated future costs of their pensioners' health care, should assess first whether or not this will be the case for any length of time. Some companies may want to remove this money from the pension fund by way of a contribution holiday over several years, and place it in another vehicle to fund the health-care needs of pensioners. This too, may not prove to be the most prudent way to deal with the problem.
|