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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

12M. Deduction of medical lump sum payments


(1)        For the purposes of this section—


dependant’, in relation to a former employee, means a spouse or any dependant (as defined in section 1 of the Medical Schemes Act);


insurer’ means an insurer as defined in section 29A.


(2) In determining the taxable income derived by any taxpayer in any year of assessment from carrying on any trade, there must be allowed as a deduction from the income of that taxpayer so derived any amount paid by way of a lump sum during the year of assessment by that taxpayer—
(a) to any former employee of the taxpayer who has retired from the taxpayer’s employ on grounds of old age, ill health or infirmity or to any dependant of that former employee; or
(b) under any policy of insurance taken out with an insurer solely in respect of one or more former employees or dependants contemplated in paragraph (a),

but only to the extent that the amount is paid for the purposes of making any contribution, in respect of any former employee or dependant contemplated in paragraph (a), to any medical scheme or fund contemplated in 6A(2)(a)(i) or (ii): Provided that no deduction may be allowed in terms of this section if the taxpayer making the payment, or a connected person in relation to that taxpayer, retains any further obligation, whether actual or contingent, relating to the mortality risk of any former employee or dependant contemplated in paragraph (a).