Zakat: Introducing Islam’s 3rd Pillar. Is it payable on your Islamic Super?

Islam powerfully and beautifully positions giving charity as an act of worship.

Zakat is Islam’s third pillar and a cornerstone of a Muslim’s commitment to our religion.

Zakat is 2.5% of the Zakat-able wealth of an individual, provided one meets a requisite level of wealth called nisab and meets other requirements (e.g. being sane, adult, etc).

The nisab is the minimum amount of wealth a Muslim must possess before they become eligible to pay Zakat. The Nisab was set by Prophet Muhammad (SAW) at a rate equivalent to 87.48 grams of gold and 612.36 grams of silver.

As we no longer use silver or gold as currency, you need to find out the equivalent monetary exchange value of the rates the Prophet Muhammad (SAW) set in Australian Dollars.

The objective of Zakat is emphasised in the Quran itself:

“Make, [O, Muhammad], from their wealth a charity by which you purify them and cause them increase, and invoke [God’s blessings] upon them. Indeed, your invocations are reassurance for them. And Allah is Hearing and Knowing”
– (Al-Taubah 9:103)

The act of giving is transformed from a loss into an ultimate gain, both spiritually and literally: that this wealth will come back to the giver in some form in the future.

The act of giving becomes much more, on the individual dimension, Zakat is strongly linked to the attainment of a more balanced society with wealth shared across all and socio-economic justice is achieved.

Islam strongly discourages the concentration of wealth in a few hands and considers their redistribution by means acceptable in Islamic Law as one of the major objectives of the Islamic economic system. In this respect, it contains within it the ingredients of an economic redistributive potential that has stood the test of time.

Zakat should be paid one year and once you’ve earned the requisite amount of nisab each year. A good way to ensure your zakat is paid is to pay it during Ramadan each year.

Muslims also pay Zakat al-Fitr, this is about the price of one meal—estimated at $15 and is paid by the head of the household for each member of the family, before Eid al-Fitr prayer. Muslims are required to pay Zakat al-Fitr before Eid prayer, this includes anytime during Ramadan.

Is Zakat payable on your Islamic Super Fund

Crescent Wealth often gets inquiries about whether their Islamic super or super in general is required to be included in their Zakat calculation. The issue of whether Zakat is payable on super is a very complex one and requires advise from scholars and qualified jurists to make intellectual interpretations and provide a solution for Australian Muslim.

At present Crescent Wealth refers members to organisations that are better placed to provide guidance.

Guidance set out by the National Zakat Foundation sets out advice base on compulsory contributions and voluntary contributions. Whether it’s an Islamic super fund or not.

The guidance is Zakat is not payable on the compulsory contributions during the lifetime of superannuation fund, where the contributions consist only of the 9.5% compulsory component. (i.e. no voluntary contributions are being made into this fund).

  • Here Zakat is only calculated and payable when the wealth can be accessed at retirement. This is due to the application of the criteria of ownership on zakatable wealth. Scholars have ruled that since the individual is not in control of and cannot spend at will from the wealth, ownership can only be acknowledged when the money is received.

However, based on the guidance, Zakat is payable on Voluntary contributions in addition to the compulsory 9.5% contributions made by the employer. The annual concessional voluntary contributions cap for 2019/2020 is $25,000 regardless of age.

  • Zakat is due on voluntary contributions and payable yearly from the point it reaches nisab and levied once you have physical possession of it, with the rate of zakat at 2.5% of the value of the contributions.

As mentioned, Zakat on your Islamic super fund or conventional is a complex area, we advise you to seek independent advice. The information provided is general information only and should not be taken as constituting professional advice.

If you do have specific Islamic questions, it’s best to reach out to your local Imam.

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