What's new?

December 2011: The minister of finance recently revealed more details regarding the new "tax credit" system, associated with medical aid fund contributions, and how it will work. The old "capped amount" system will be abolished with effect from 1st March 2012 and will be replaced by a "tax credit" system. While, in the past, capped amounts were effectively deducted from taxable income, the new tax credits will be deducted from the final amount of tax due.

It is extremely important for tax consultantsto know exactly how these new tax credits will work as we all know that employers are notorious for getting medical calculations wrong both at salary source as well as on IRP5 certificates. At first glance the conversion of capped amounts to tax credits seems simple enough, however one cannot help but be concerned that many people, including employers and especially SARS assessors, will take some time (maybe years) to understand how these changes work. Fortunately, WinTax2013 and BackTax2013 will cater for all these changes when WinTax2013 and BackTax2013 are released within a few days of the budget being read next month. The elimination of capped amounts and the introduction of tax credits has meant radical changes to many screens in both BackTax2013 and WinTax2013. The new screens show exactly how, and where, the new tax credits fit into the tax calculation.

The new changes regarding tax credits only affect taxpayers who are not yet 65. There are no changes to medical claims for taxpayers 65 years of age and older. Capped amounts never applied to aged 65 and older taxpayers in the past and tax credits do not apply to them now. Taxpayers aged 65 and older will still be allowed to claim all their medical aid fund contributions and allowable out-of-pocket medical expenses just as before. In the case of taxpayers 65 and older who are employed, all medical aid fund contributions paid by the employer will be added to salary as a fringe benefit at salary source. However they will be allowed a deduction of medical aid fund contributions at salary source which means a tax-neutral situation.

For taxpayers not yet 65 the calculation is more complex. Because capped amounts have been abolished from 1st March 2012, the full amount of the employer’s medical aid fund contributions (without a capped amount deduction), will be added to the rest of salary/remuneration to work out the tax due at salary source. To compensate for this increase in taxable income/remuneration, the tax credit will be subtracted from the tax due on the salary at salary source. Tax credits will be granted according to the number of medical aid fund beneficiaries for whom contributions were paid. The first two beneficiaries will be granted a tax credit of R216.00 each and additional beneficiaries will be granted a tax credit of R144.00 each. This means that a married taxpayer with 2 children (4 beneficiaries in total) will qualify for a tax credit of R720.00 per month which means that the amount of tax due on the monthly salary will be reduced by R720.00

Tax credits are non-refundable. This means that, if the tax credit reduces the tax to be deducted at salary source to less than zero, the tax to be deducted from salary will be zero - but don't worry as WinTax2013 and BackTax2013 will do all these calculations for you and explain the whole calculation.

At assessment time, the total income shown on the IRP5 will include the employer’s contributions to the medical aid fund. The taxpayer may claim as a deduction, at assessment time, the total of all the medical aid fund contributions paid plus all allowable out-of-pocket expenses limited by a formula taking a factor of the tax credits into account. Only so much of this claim as exceeds 7.5% of taxable income will be granted as a deduction against income.

When one compares the new tax-credit system to the old capped-amount system, it becomes obvious that the new tax-credit system will benefit taxpayers on a lower income scale more than those taxpayers with larger incomes. Although, at this stage, nobody knows what the new tax tables for next year will look like, SARS have indicated that taxpayers with a medical aid and a modest taxable income will, on average, pay a few hundred Rand a month less tax while taxpayers with a medical aid and higher taxable incomes will pay more tax with the new tax-credit system.

The tax credits will be used to reduce the final tax commitment at assessment time. Because tax credits are non-refundable, it means that tax credits may be used to reduce an amount of tax due but may not be used to increase a refund.

Apparently these new rules will apply for at least one tax year while SARS contemplates the feasibility of including allowable out-of-pocket medical expenses, as well as taxpayers of 65 and older, in the tax credits system.

You don’t have to worry about any of these complex new rules as WinTax2013 will cater for all the new medical claim laws and we, at Softbyte Computers, will always be here to help WinTax2013 and BackTax2013 customers understand how these changes to the laws are implemented. WinTax2013 and BackTax2013 will feature new screen designs to cater for the changes to medical laws and we will have new video clips available on YouTube, and on our web site, explaining the new medical tax-credit system soon after the budget is read on 22nd February 2012.

November 2011: A "Tax Help video clips" option has been added to the Home page menu on our web site. The option offers a list of YouTube video clips regarding WinTax features and calculations etc.

16/10/2011 New update for WinTax2012 released adding the R/A Tax Advantage Calculator to the "Side Tax" calculations menu.

New version 1.08 of SoftFin released on 8/4/2011. A new "Life of share/units capital" option has been added.

New versions of WinTax2012 and BackTax2012 released on 9/3/2011 to cater for, and clarify, the new options employers have to tax either 80% or 20% of the Use of Company Vehicle fringe benefit amount and also to tax either 80% or 20% of Travel Allowances paid at salary source. Note that the 20% factor can only be used if the employer is convinced that virtually all the mileage done will be business mileage. The feature which allows you to compare company car vs travel allowance has been enhanced in both WinTax2012 and BackTax2012.

WinTax2012 and BackTax2012 released 24th February 2011 - one day after the budget is read!

Document released explaining how to export reports from WinTax, BackTax or SoftFin to a different format such as a WORD document. The document uses our SoftFin program in an example scenario but the same option exists, and works exactly the same, in WinTax and BackTax. Download the 3-page document in pdf format here Exporting reports to WORD.pdf

After 20 years of sales and free updates, the IBCFIN and FirstFin Pro programs were discontinued on 14th April 2010. These programs have been replaced by a new program called SoftFin. IBCFIN and FirstFin Pro enjoyed great success with users enjoying free updates and support for the past 20 years but it became increasingly difficult to add improvements and extra features, requested by users, to a program which used old programming technology. IBCFIN and FirstFin Pro will no longer be supported and no new updates will be issued for IBCFIN or FirstFin Pro. If you are an IBCFIN or FirstFin Pro user then contact Softbyte Computers regarding an upgrade to SoftFin.

11/03/2010. WinTax2011 and BackTax2011 updated to suite SARS's new method of calculating taxable income with regard to contributions made to medical aid funds. Although, when first reading the new legislation, it may appear that the entire amount of any medical aid contributions paid by the employer i.r.o the employee is taxable at salary source, but this not so. The employer may still deduct the capped amount from from the employer's contributions when determining tax to be deducted from remuneration at salary source (just as before). The difference comes in on the IRP5 where the code 3810 amount on the IRP5 will equal the code 4474 amount. The code 4005 amount will still equal the code 3810 plus any contributions paid by the taxpayer.

Because the full amount of the employer's contributions is now added to taxable income when you do the end-of-year asessment, the taxable income will effectively be increased by the capped amount (compared to last year). However all taxpayers will now be granted the capped amount, but not exceeding the total contributions, as a deduction on their assessment in 2011.

In 2010 the code 3810 amount on the IRP5, and added to taxable income, was the employer's code 4474 contributions less the capped amount.
In 2011 and 2012 the code 3810 amount on the IRP5, and added to taxable income, is the same amount as the employer's code 4474 amount.
In 2011 and 2012 the taxpayer will be granted his capped amount (but not exceeding total contributions) as a deduction on his assessment.

The Department of Labour annouced that the salary limit for the calculation of UIF contributions will be raised from R11,662 per month to R12,478 per month with effect from 1st October 2007. Click here for the official notice.