The tax savings many retirees miss

Daniel Baines | 22 June 2022

Daniel Baines is the author of How to Get a SARS Refund for Retirees and has been working as a tax professional in South Africa for the last seven years. He also has a PhD in tax from the University of Pretoria. 

Many retirees miss out on reducing their tax liability by failing to submit their annual tax return. Depending on your circumstances, the submission of your annual tax return may result in the South African Revenue Service (SARS) owing you a refund.

Here are the reasons why:

You belong to a medical scheme

As a retiree, it is unlikely that the financial institution paying your pension is also processing your medical scheme payments (as might have been the case when you were employed).

In order to access the medical scheme fees tax credit for contributions made to a medical scheme (R347 a month each for the main member and first dependant in the 2023 tax year), you will need to file your annual tax return. If you do not file your tax return, you will miss out on this medical tax credit. Read more: What is a medical tax credit?

In addition to the above, everyone who is 65 years or older (on or before February 28 of each year) is entitled to an additional medical tax credit that is not available to individuals under the age of 65 years.

Depending on your income and amount you pay to the medical scheme, you may be able to obtain the additional medical tax credit (in addition to the normal medical tax credit of R347 a month each for the main member and first dependant).  Read more: What is the additional medical tax credit and who qualifies for it?

In other words, even if you have not incurred out-of-pocket medical expenses (expenses you did not recover from your medical scheme), you may still be able to obtain an additional medical tax credit.

Your scheme should provide SARS with details about your medical contributions and these should be prepopulated on your annual tax return, but be sure to check that what SARS has uploaded is correct before filing.

You have out of pocket medical expenses

If you have paid for medical expenses which have not been recovered from a medical scheme, you need to inform SARS about these when you file your annual tax return. You don’t need to be part of a medical scheme to claim this benefit. If you have incurred medical expenses you did not successfully claim from a scheme or a policy, then you may claim this benefit.

SARS will then perform a complicated calculation to determine whether you are entitled to an additional medical credit for these out-of-pocket medical expenses.

When you turn 65 years of age, you are entitled to an increased medical tax credit. This means that even if you have only incurred a small amount of out-of-pocket medical expenses, you may be able to get a reduction in your tax liability (and hopefully a refund).

This contrasts to the situation before you were 65 years, as taxpayers under this age must incur a large amount of out-of-pocket medical expenses before they are able to access this additional medical credit.

It is, therefore, a good idea to keep all invoices for your out-of-pocket medical expenses. If you have claimed the expenses from your medical scheme and it rejected your claims, these expenses should then be reflected on your medical scheme tax certificate that you receive from your scheme each year.

When you include these expenses on your annual tax return, they need to be entered next to the code on your tax return for out-of-pocket medical expenses that you claimed from your scheme but the scheme did not pay. There is a different code for expenses you paid out-of-pocket but did not claim from your scheme. SARS will do the calculation to determine whether you are entitled to an additional medical credit for these expenses.

The crucial take away from this is that you need to submit your annual tax return in order to access these reductions in your tax liability. If you fail to submit an income tax return you may be missing out on a refund.

In addition, if you have income from more than one retirement fund, you are required to submit an annual tax return - you may have a monthly pension from your employer-sponsored fund and an annuity bought with your savings in a retirement annuity. Read more: More tax on my pension – can that be right?

If you are required to submit a return but fail to do so, SARS may implement penalties until the return has been filed.

You can find more articles for retirees in the At retirement section of our site