How do we calculate Zakat on RESP?
Bismillahi Ta’ala
Walaikum Assalam Warahmatullah
RESP is a fund which anyone can open to keep money aside for the education of one’s child. It works on the same basis as RRSP where there are multiple avenues of investment, and the Subscriber may have the option of self directing funds into the right halal suitable avenues.
Once established, a specific beneficiary is appointed for this particular RESP. This is typically the child who the person wishes to benefit from this money for their higher education. Government will match a percentage of the Subscriber’s contribution to every eligible RESP. Therefore, a specific RESP will become a combination of two parts.
- Subscriber’s contribution
- Government’s contribution
According to RESP governance rules, the Subscriber’s own contribution remains accessible to the Subscriber until the child turns 18 years old. If he chooses to withdraw before then, there will be penalty as well as tax.
For calculation of Zakat, the entirety of the accessible contributions towards RESP will be Zakatable every year. Subscriber should not deduct the penalties and tax amount when calculating their Zakatable amount.
Once the child turns 18 and RESP is transferred over to him as beneficiary for educational purposes, the child will give zakat on the amounts they will receive from there onward, depending on how the fund disbursements are structured.
If the child does not continue his education, and the Subscriber chooses not to continue the RESP (the child may want to delay his higher studies), then the RESP will become fully accessible to the Subscriber. The Subscriber now will pay zakat on entire amount (including Government contribution) from that point onward.
If the Subscriber chooses to redirect this RESP to some other investment account like RRSP etc. then the respective governance rules will apply.
Wallahu A’lam
And Allah Ta’āla Knows Best
Mufti Faisal al-Mahmudi