Q: A few years
ago a bonus was paid into a medical aid savings account on the instruction from
a broker that this was a valid tax saving mechanism. The employee has now
resigned from the company and left the medical aid and hence been paid the
amount in the savings account which has also grown. He has queried how this should
be shown on his tax return. Should the original amount be shown as income and
the growth as a capital gain? I was not aware of this tax saving/delaying
mechanism and do not know what to advise.
A: Typically any
credit balances on a medical aid savings account would earn interest which is
subject to normal income tax in terms of section 24J of the Income Tax Act. The
interest earned should have reflected on the taxpayer’s annual medical aid tax
certificate and interests earned should have been included in his tax return
annually. The information provided is unfortunately not sufficient and this
advice is provided face value.
I do suggest that a tax certificate be issued by the medical
aid to determine whether there might be any other factors involved.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.
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