RRSP, TFSA, RESP and pension plans

Why these accounts raise questions Canadian registered accounts did not exist in the time of the great imams; contemporary scholars reason by analogy, from the conditions seen in lesson 2, above all full ownership (can you dispose of the money?) and the penalties or taxes on withdrawal. There is no single position. This lesson presents the main positions neutrally; the position to follow is to be asked of the imam or a recognised body [À VÉRIFIER : l'ensemble de la leçon, pour l'imam].

The TFSA (tax-free savings account) You can withdraw the money at any time, without tax. Most scholars therefore treat it as ordinary savings: its contents (money, or investments as in lesson 4) go into the calculation every year. The fact that it is "tax-free" changes nothing for zakaat.

The RRSP (registered retirement savings plan) and the RRIF You can withdraw money from an RRSP, but the withdrawal is taxable and a withholding tax is deducted immediately. Three main positions are reported: • First position: zakaat is due every year on what you would receive if you withdrew everything today, that is the account's value minus the estimated taxes and penalties. Argument: you own it and can access it. • Second position: zakaat is due every year on the account's total value, deducting nothing, as a precaution [À VÉRIFIER]. • Third position: no zakaat as long as the money is not withdrawn, because access is restricted and penalised; on withdrawal, the money joins your ordinary savings (some then require one year's zakaat) [À VÉRIFIER]. For long-term investments inside the RRSP, some also apply the "zakatable portion" method of lesson 4.

The RESP (registered education savings plan) It contains your contributions (which you can in principle recover) and government grants (CESG) that do not really belong to you, since they go back to the government if the child does not pursue studies. Many therefore distinguish: zakaat possible on the contributions, not on the grants; others consider the whole account as intended for the child [À VÉRIFIER].

Employer pension plans, CPP and QPP • Defined benefit plan (the classic "pension fund"): you cannot touch the money before retirement. Most contemporary scholars say there is no zakaat before receiving the payments [À VÉRIFIER]. • Defined contribution plan or group RRSP: depending on whether the money is accessible or locked in, it is treated like an RRSP or like a locked plan [À VÉRIFIER]. • CPP (Canada Pension Plan) and QPP (Quebec Pension Plan): these are rights to a pension, not an account that belongs to you: no zakaat on these rights; pensions received join your ordinary money.

Worked example (for illustration) Nadia, 38, has a TFSA of $12,000 in cash and an RRSP of $40,000 invested in an Islamic fund. If she withdrew her whole RRSP today, she estimates that withholding and tax would take about 30% (a fictitious rate; it depends on income and province). • TFSA: $12,000 (all positions). • RRSP, first position: 40,000 − 30% = $28,000. Total: $40,000; zakaat $1,000. • RRSP, second position: $40,000. Total: $52,000; zakaat $1,300. • RRSP, third position: nothing this year. Total: $12,000; zakaat $300. The gap is significant: it is a question to settle once with the imam, then to note down.

Questions to prepare for the imam • Which accounts do I have, in whose name, and can I withdraw the money? • What is the value of each account on the zakaat day, and what taxes would apply on withdrawal? • Are the investments inside cash, short-term or long-term shares? • Are the chosen funds lawful (lesson 15)?

The text: Surah At-Taghaabun (64), verse 16 فَاتَّقُوا اللَّهَ مَا اسْتَطَعْتُمْ وَاسْمَعُوا وَأَطِيعُوا وَأَنْفِقُوا خَيْرًا لِأَنْفُسِكُمْ ۗ وَمَنْ يُوقَ شُحَّ نَفْسِهِ فَأُولَٰئِكَ هُمُ الْمُفْلِحُونَ ﴿١٦﴾

Meaning: "Be mindful of Allah as much as you can, listen, obey and spend: it is good for yourselves. And those who are protected from the avarice of their own souls, they are the successful." The verse gives the rule for new questions: doing one's best (maa staṭa'tum), without neglecting or imposing on oneself what Allah has not imposed, and being wary of the avarice (shuḥḥ) that pushes one always to choose the lightest opinion.

Arabic text: Tanzil Quran Text (Simple, version 1.0.2), © 2008-2010 Tanzil.net, Creative Commons Attribution 3.0 licence, reproduced without any change (http://tanzil.net). Each verse is on its own line, followed by its number; the basmala, which the Tanzil file places at the start of the first verse, is written on its own line.

Understanding the lesson

Explanation Registered accounts are a good example of a new question (naazila): there is no direct text, and scholars apply old principles to a modern reality. The central principle is ownership: the more freely you can dispose of the money, the more zakaat applies. This is why the TFSA is treated as savings, while a locked pension fund is not. The RRSP lies in between: you have access to it, but at a cost. Hence three positions, all defended by contemporary scholars. The role of this course is not to choose for you, but to allow you to ask the imam the right question, with the right figures. Verse 64:16 recalls the right state of mind: doing one's best, and protecting oneself from avarice. The believer does not look for the position that makes him pay the least, but for the one that seems most just to him after asking.

Lessons to draw from it • List your registered accounts and those of your spouse and children. • Note, every year, their value on the zakaat day and the net value on withdrawal. • Ask the imam once, with precise figures, and keep his answer in writing. • Do not forget that the lawfulness of the investments in these accounts is also a question. • Review the question if your situation changes (retirement, withdrawal, unlocking).

Key points to remember • TFSA: treated as ordinary savings by most. • RRSP and RRIF: three positions (net value every year, total value, or nothing before withdrawal) [À VÉRIFIER]. • RESP: contributions and grants distinguished by many [À VÉRIFIER]. • Locked pension fund: no zakaat before payments, according to most [À VÉRIFIER]. • CPP and QPP: rights to a pension, not an account: no zakaat on these rights.

The main message For new accounts, the old rule applies: the more you can dispose of your money, the more it carries a right; prepare your figures, ask the imam, and do your best.