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How do I remove ‘gap cover’ insurance fees from the medical contribution amounts on an IRP5?

Thursday, 16 July 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: One of our clients provided us with her IRP5 and medical aid certificate for us to submit her Income Tax return. I noticed that the medical deductions per the IRP5 is higher than the medical aid contributions per the medical aid certificate.

I enquired what caused the difference and heard that the GAP Cover contributions were also deducted as part of the medical aid contributions. I know that GAP cover is insurance and not medical expenditure, so the GAP cover contributions may not be deducted.

How do I rectify this?

If I leave it as it is, our client will get a greater deduction than what is allowed. I am not able to deduct the difference on the return and only positive amounts are allowed.

A: We are not sure what the "medical deductions per the IRP5” are that you refer to.  For the 2015 year of assessment the employer cannot make a deduction of contributions to a medical scheme from the net remuneration of the employee – see paragraph 2(4) of the Fourth Schedule to the Income Tax Act.  Paragraph 9(6) allows that there must be deducted from the amount to be withheld or deducted by way of employees’ tax the amount of the medical scheme fees tax credit that applies in respect of that employee (in terms of section 6A) if—

(a) the employer effects payment of the medical scheme fees as contemplated in section 6A(2)(a); or

(b) the employer does not effect payment of the medical scheme fees as contemplated in section 6A(2)(a), at the option of the employer, if proof of payment of those fees has been furnished to the employer. 

The tax credit applies in respect of fees paid by the taxpayer to a registered medical scheme. The number of persons (dependants) for whom you make contributions to a medical scheme will determine the value of the credit. The amount of the medical scheme contribution tax credit is:

               R257 in respect of benefits to the taxpayer;

               R257 in respect of benefits the taxpayer’s first dependent;

               R172 in respect of benefits to each additional dependent.

These amounts will in all probability not agree to the contributions made to the fund, but you are correct that the employer, against code 4005 (3810 and 4474), must only include the actual fees paid by the employer.  If the GAP Cover contributions are not fees it should have been excluded from the amount on the IRP5.  The medical  scheme  fees  tax  credit  will  be  reflected  next  to  source  code 4116 only if the medical  contributions were paid by the employer. 

Your concern is correct that the amounts reflected on the IRP5 (the wrong ones) may well be used for the additional medical expenses tax credit and SARS may will only pick this up if a review is called for.  It may therefore be appropriate to request the employer to correct the IRP5 as the employee has no opportunity to correct this on the IT12. 

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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