On what exactly does Zakat need to be paid? Does it include equity in the home, and money in one’s superannuation balance?

In the name of Allah, the Most Gracious, the Most Merciful.

Assalamu Alaykum Wa Rahmatullahi Wa Barakatuh

All praise and gratitude are due to Allah SWT. May the blessings and peace of Allah SWT be upon His Messenger PBUH.

Zakat is one of the five pillars of Islam and is considered a religious duty for all financially capable Muslims. It is an obligatory form of charity that is required to be given to those in need, obligatory on those who meet the following conditions:

1. Being a Muslim;
2. Possessing a minimum amount of wealth (known as the Nisab);
3. Possessing the wealth for a full lunar year;
4. Where the wealth which exceeds one’s basic needs and expenses;
5. Where the wealth is productive, meaning it has the potential to increase in value.
6. Being financially solvent, or free from debt.

The threshold at which Zakat applies, which is the Nisab, is the equivalent of 87.48 grams of gold or 612.36 grams of silver, or its cash equivalent. The amount of Zakat to be paid is 2.5% of the total wealth or assets held in possession for a lunar year. Zakat should be given to specific categories of people, including the poor, needy, those in debt, those who have recently converted to Islam, and the wayfarer.

What is wealth (Maal)?

According to the Hanafi jurists, two elements are required in order to confer the status of Maal on a thing:

1. It should be material and susceptible to being possessed and protected. Therefore, those things upon which human control is impossible are excluded from the definition of Maal. For example, free air, heat of the sun and moonlight cannot be classified as Maal. There is clear evidence that Hanafi jurists stipulate that the thing, in order to be considered as Maal, does not actually need to be owned; rather it is sufficient, in their view, if the thing has the potential to be owned. The hunts in the desert and the birds in the sky are therefore Maal according to them, on account of their capability of being owned.

2. The thing should have the potential for beneficial use according to the prevailing customs. Therefore, the things which are not beneficial, such as poisonous or harmful food or carrion are not classified as Maal. Moreover, things which have the potential for beneficial use but not accorded as such by the customs of the people, such as a single wheat cereal, a drop of water, or a handful of soil, are not regarded as Maal, because they have no benefit in these small units. It is important to note that the beneficial use should be judged in view of the Shariah and in context of the persistent customs under normal -not extreme – circumstances. The beneficial use in circumstances of necessity, such as the consumption of carrion for survival in severe hunger, thus, is excepted and would not confer the status of Maal on the carrion.

In light of the above-mentioned definition of Maal, we may now determine certain characteristics which qualify something as Maal:

1. It must be naturally desired by man. In today’s terminology, it must have commercial or productive value.
2. It must have the potential to be owned and possessed.
3. It must have the potential of being stored.
4. It must be beneficial in the eyes of the Shariah.
5. The ownership of the thing must be assignable and transferable.

What are the conditions of a Muslim’s wealth that determine if they have to pay Zakat?

The six conditions of a Muslim’s wealth that determine if he or she must pay Zakat from it are:

1. Absolute Ownership
2. Growth
3. Minimum quantity
4. Abundance above need
5. Solvency (freedom from debt)
6. Lapse of a lunar year (or time of harvest)

1. Absolute ownership is a legal ‘term of art’ in Islamic jurisprudence (Fiqh). It means that while Allah SWT is the true Owner of all things, He has – as a mercy, honour, safeguard against the human propensity for greed and as a test – given human beings the right as individuals to possess and control property to the exclusion of all others, such that he or she can exchange it for another asset or dispose of it without anyone else’s permission. This is a condition of Zakat, because any material asset of wealth from which one pays Zakat must be transferred into the exclusive possession, or toward the sole benefit, of an individual from one of the eight categories that God has decreed eligible for Zakat. In other words, the individual Zakat recipient, someone poor or needy (or in the case of direct benefit, one in bondage or debt-ridden) must become the only owner or reap the unshared benefit of the Zakat paid by a Muslim whom God has materially enriched.

This means that assets administered on behalf of the community, properties in a public trust, ill-gotten gains such as stolen property or interest, bad debts (until paid), and contributions (until one gains full control over them) is not liable for Zakat. Superannuation does not meet the ownership condition, because despite it sitting in an account which one may own, they do not possess enjoyment or utility of the property therein. As such, there is no Zakat on it.

2. Growth describes two states of a person’s property: (i) An asset that provides its owner profit or material benefit, or that could if put to use, or (ii) an asset that is itself produced by growth, either as a gain or by acquirement. Hence, earnings, livestock, and agricultural material give or can give one growth. This is the meaning of the statement from the Prophet PBUH, that “Sadaqah does not diminish wealth” (Al-Tirmidhi). One pays Zakat at a fraction of surplus growth, not on the things one or one’s family personally use, like a house (one lives in), furniture, a vehicle, clothing, or tools (including books). A farmer pays Zakat on crops at harvest but not on their remaining yield, even if stored for years. Intriguingly, this adds another layer to Zakat’s linguistic meaning of ‘growth’ – alongside furnishing its payer with blessing and increase from God. At cultivation, a crop is literally growth. Stockpiled, it no longer grows, though it still holds wealth.

3. Minimum quantity refers to the lower limits that the Prophet PBUH established as fixed thresholds at which a Muslim must pay Zakat on eligible wealth. This is called Nisab, and that is the equivalent of 87.48 grams of gold or 612.36 grams of silver, or its cash equivalent as discussed above. At today’s value, based on the silver measure, this equates to approximately $750 AUD.

4. Abundance above need takes account of the wealth one needs for the basics of life. This makes reference to an important interaction between growing assets subject to Zakat and the Nisab threshold at which one has to pay Zakat on it. Some scholars hold that once a wealth-stream – meeting the criteria of Zakat – reaches Nisab, one pays Zakat on it at its due regardless of any other consideration. This is because (i) people do not generally use growth assets to suffice their essential living needs and (ii) growth assets present the only objective measure by which we can effectively and fairly calculate Zakat.

Other scholars (who Shaykh Yusuf Qardawi in Fiqh az-Zakat endorses, as “steeped in Zakat learnedness”) hold that since Zakat’s very purpose is to suffice the poor, needful, and deserving, it treats any wealth one uses, personally or for dependents, to meet life’s essential needs, as non-existent. These scholars note that this necessarily includes wealth in the form of money, because many people today depend on money to meet their basic life needs.

In terms of Zakat, money is a clear ‘growth’ asset. This contradicts the basis of the argument that Nisab, pure and simple, is the best measure to determine whether or not one pays Zakat on wealth. Hanafi scholars, in general, argue that Islam defines the categories of rich and needful by Nisab. One who has it, is wealthy. One who does not, is poor. And one cannot “cheerfully” pay Zakat from wealth needed to sustain oneself and one’s family. This runs counter to the spirit of Zakat, which is to be paid gladly. According to them, then, Nisab and Zakat calculation begin in the wealth one accumulates beyond the wealth used for their basic needs, and those of their households and dependents.

The Quran directly supports this opinion: ‘They ask you (O Prophet), “what part of [their] wealth they should spend (charitably).” Say: “Spend of your surplus wealth.”’ (Quran, 2:219). Furthermore, the great scholar of prophetic statements, Ibn Hajar, notes that the celebrated compiler of the most authenticated collection, Bukhari, in fact, titles a section on Zakat to make clear that the Prophet’s statement, PBUH — “There is no Sadaqah save from wealth” — sets a revealed requirement for paying Zakat. It means valid Zakat is conditioned on a man having met the basic needs of himself and his family prior to his payment of alms. Note that Islam does not require wives to support husbands and dependents.

How can basic life needs be objectively established?

The Nisab-centric scholars are right that assessing life needs is inevitably subjective and thus open to endless personal justification. Scholars exempting essential-living wealth from Zakat offer reasoned juristic criteria to categorise and determine what assets qualify as truly essential; that is, without these assets, basic life cannot equitably be sustained. They emphasise that this varies in time and place, and accordingly requires scholarly assessment by those learned both in Zakat and in one’s society and social conditions. Here is a three-part guideline for determining basic needs, which has been cited based on Fiqh az-Zakat as a good standard:

• Existential needs: Those which prevent actual or likely ruination (e.g. food, water, shelter, etc).
• Subsistence needs: (E.g. Living expenses, clothing, medicine, etc).
• Prospective needs: (E.g. Trade tools, debt repayment, furnishings and utensils, means of transport, and even education – Islam considers the absence of knowledge as a form of destruction).

5. Solvency means freedom from debt. Most Islamic jurists hold that debt eliminates one’s Zakat obligation – or at least reduces it – because it carries a priority of repayment. This ruling grows out of the first condition for wealth, that is, absolute ownership. The creditor is the actual owner of the debt, or at least shares in the ownership, and two people cannot pay Zakat on the same wealth. If a debtor is likely to repay the debt, the creditor pays Zakat on it (either at its due or when they receive its payment). A debtor, on the other hand, whose debt takes them below the Zakat threshold (Nisab) is, in fact, eligible to receive Zakat, by the decree of God. It is significant to note that one must have proof that verifies their claim of debt.

Most Muslims today live in the absence of Zakat collecting authorities who would normally personally assess one’s discernible wealth and determine one’s due Zakat. Muslims ought to assess their own indebtedness and pay Zakat on any remaining wealth after deducting their debts. One should break these debts down into two major categories, in order of priority:

1. Debts to God

a. Past years of overdue Zakat.

b. Payments of expiation for worship violations.

2. Debts to people

In the matter of recurring debt payments (e.g. mortgages, unsecured debt such as credit cards and the like, deferred Mahr payments), there is dispute about their deductibility as debt. It may be safer for one to assess one’s Nisab and calculate one’s due Zakat as a right to the poor despite these, if one is paying them as a matter of course without undue threat from delinquency (i.e. legal, economic or personal risk). It should be noted that Islam does not condone excess consumption beyond basic needs as legitimate debt, may God forgive us for our excesses.

6. Lapse of a lunar year

A Muslim pays Zakat once a year on the profit (or, rather, the potential of it) from eligible wealth. There are two types of property categories to consider:

1. Designated growth holdings: Business assets and stores of value (including money, precious metals, gems, livestock, etc.)
2. Gains from earth: Cultivated produce like crops, fruits, and anything extracted from the earth.

The lunar year as the zakat due date

On the first type of wealth — growth assets — the passing of a complete 12 months of the Hijri calendar, the Islamic lunar year, occasions one’s Zakat due date. It is a fixed deadline. One can pay in advance of it (even by years) according to estimate (and then reconcile any shortfall at the actual Zakat due date), but one cannot miss it without incurring sin.

One calculates a Zakat year from whatever date one’s Zakat-eligible wealth reaches the minimum threshold of Nisab for that type of wealth until an entire 12 Hijri months pass.

Profit on principal during the zakat year

Whatever profits or gain comes from one’s principal wealth during that Zakat year gets added to that principal for the purposes of calculating Zakat payment at the principal’s same original due date. One does not start another lunar year on these additional assets, be it profits or birth from livestock, even if it is the day before the due date.

Different kinds of wealth can have different zakat due dates

If one receives a different kind of Zakat-eligible wealth, most scholars say that one starts a new calculation of a year for its Zakat due date. Some say one should pay Zakat on it upon receiving or add it to one’s Zakat payment if they have an established Zakat accounting year.

The same kinds of wealth can be added to zakat due dates for ease

If one takes possession of a new asset that is the same as an existing kind of wealth — such as adding gold to gold, or sheep to sheep — the Hanafis and Malikis hold that it can be added to the existing wealth and that Zakat be paid on it at that existing wealth’s due date. This facilitates less confusion and therefore ease, and the Shariah chooses ease. On the other hand, the Shafi’is and Hanbalis contend that one can start a new Zakat-year calculation on newly acquired wealth.

Finally, the following notes have been provided to directly address, in summative form, the initial prompt’s second part:

Note 1: Zakat is not applicable to superannuation funds or contributions made to these funds. This is because superannuation funds are considered as retirement savings and not part of an individual’s current wealth.

Note 2: If the mortgaged house is the primary residence, there is no Zakat obligation on it. Furthermore, if it produces any income, there will be Zakat on the income.

And Allah Knows Best.

May Allah the Almighty make you and I among those who listen to advice and follow the best of it, and may Allah the Almighty’s blessings and peace be upon our master Muhammad and his family and companions. Ameen.