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Example Problem Calculating Zakat
Ahmad has RM 105,000 saved into his EPF but Aisyah only has RM 70,000 in hers. They have a non-registered account between the two of them with RM 70,000. Their house has a current market value of RM 525,000, but there was a riba-free mortgage taken out against it 2 years ago for an agreed RM 222,000. After checking with their mortgager, they have found they have 150 payments of RM 1,273.58 left to make. They have some education capital already accumulated, valued at RM 4,000. They have not been paying Zakat and would like to pay their zakat due based on wealth.
Solution Using Summary Assets
On the Assets and Liabilities screen, the clients’ holdings will only be entered at the summary level. So, from what they told us of their assets, we can:
- Enter the RM 70,000 value of Aisyah’s EPF under Aisyah EPF
- Enter the RM 105,000 value of Ahmad’s EPF under the Ahmad EPF
- Enter the RM 70,000 value of the joint non-registered holdings under the Non-EPF Investments.
- The RM 4,000 of education capital can be entered under Registered Education Savings
- Enter the current market value ($525,000) of the residence under Personal Use
Note: Even though these assets weren’t specified as matrimonial or joint, for now we shall assume that both the client and spouse have joint use of the assets. While this distinction of ownership rights in how the assets may be treated on death, we are not currently managing the client’s estate or insurance needs, so this can be dealt with later.
- We will also include their zakat due, since it is an amount owing, under Personal Use Liabilities. To calculate the zakat due for Ahmad, find the total value of all assets subject to zakat (in this case only half of the joint non-EPF for RM 70,000 = RM 35,000). Personal Use assets (with the exception of gold) are not subject to zakat because they are not used with the purpose of generating income. Other accounts may not subject to zakat because of unclear ownership of the assets; this applies to the EPF account.
- Since this value is over the RM 8,500 Nisab, multiply the entire amount by 2.5%. (The answer should be RM 875)
- Following the same steps for Aisyah, of all her accounts, only the following are subject to zakat: half of the joint non-EPF account, so her zakat due is also RM 875.
- Since the mortgage value (150 payments x $1273.58 = $191,037) would also be included under Personal Use Liabilities, input the total zakat due and mortgage value under Personal Use Liabilities. (RM 875 + RM 875 + RM 191,037 = RM 192,787).
- Click Save.
Example Problem Tax Deductions
Nidal Dhakir and Rasha Nadhir have begun planning for their current zakat due based on wealth (of RM 6500 and RM 500 respectively) and want to realize any tax rebates available.
Solution Using Detailed Cash Flow:
Use the drop-down menu to go straight to the Cash Flow Management screen.
Here, you would enter the clients cash flow information and then, since the zakat is due for this year for their accumulated wealth, you can enter the zakat as a tax rebate based on the current tax system in your country. To do this, you will have to use the Detail Cash Flow button in the top right of the data entry screen.
- First you will have to expand the Taxes section to enter more data by clicking on the Plus sign.
- In between the Taxes Payable and the Balance Due of the taxes, there is an editable field for Income Tax Deducted. This is where you will enter the amount of zakat being paid so that the full amount of the rebate is subtracted from the final taxes instead of the tax-liable income.
- Under Client’s Income Tax Deducted enter the $6,500 of zakat due.
- Under Spouse’s Income Tax Deducted enter the $500 zakat due.
- Click Save so the taxes due for this year are re-calculated.
- Click Back to return to the summary Cash Flow screen.
Note: The Taxes Paid at the summary level will still show the value for taxes payable as opposed to the final taxes due after the rebate. This is because the tax rebate is a one-time rebate and going forward higher level of income taxes payable will apply, rather than a higher lifestyle.