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2012 has already proven to be the start of a number of major new employment legislative initiatives. The conversion of medical scheme contribution deductions to medical scheme contribution tax credits will be effective from 1 March 2012, as announced by the minister of Finance, Mr Pravin Gordhan, in his 2011 Budget Speech. The aim of this initiative is to grant a measure of tax relief impartially across income groups and in fair proportion to the average direct government spend on health services for people who do not have medical scheme cover.

This is expected to be followed, in 2013, by similar amendments to the taxing of medical expenses and the introduction of contributions to the National Health Insurance (NHI) scheme.

Effective 1 March 2012, a tax credit amount will be introduced in place of the Medical Capped Amount which is due to cease on 29 February 2012. A medical scheme contribution tax credit will be available to tax payers who are below the age of 65 and who belong to a medical aid scheme. These will be fixed amounts per month, namely R 216 each per month made in respect of the employee and one dependant, plus R 144 per month for each additional dependant.

For an employee who is 65 years and older and who has not retired, the non-taxable fringe benefit has been repealed in respect of medical scheme contributions paid by the employer on behalf of the employee. The contribution amount will now be a taxable fringe benefit, aligned to the treatment of all other taxpayers. However, a person 65 years and older is still entitled to the full medical scheme contribution paid as a deduction. The net effect on such a person's tax due would thus be nil.

The fringe benefit will still be non-taxable where an employee has retired from an employer and the employer continues to pay contributions on behalf of the retired employee.

As of 1 March 2012, employers will be required to update their payroll systems in order to ensure the correct calculation and deduction of payroll taxes viz. Employees' tax (PAYE), Unemployment Insurance Fund contributions (UIF), and Skills Development Levies (SDL). Employers will also have to inform employees of the impact these changes will have on their monthly salary.

Two new source codes have been introduced as indicated in the table below:

The descriptions of the two existing source codes have been modified:

The following previously deactivated source codes have now been re-activated.

These source codes are valid from:

1999 - 2009 year of assessment and from the 2013 year of assessment

2002 - 2009 year of assessment and from the 2013 year of assessment for the Foreign Service Income (the source codes denoted in brackets)

As a result, employees' net take home salary may be adjusted due to the medical tax credit impacting the amount of tax withheld by the employer.

These changes are due to take effect from the 2013 year of assessment (1 March 2012 - 28 February 2013) and will affect the 2013Employees Tax certificates [IRP5/IT3(a)] to be submitted by employers, and 2013 Income Tax Returns (ITR12) to be submitted by taxpayers.

For more information please email info@educos.co.za