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2. Expenses that are Exempt from Khums

Since Khums is levied on the surplus of gains, profits made on these gains are not subject to Khums immediately; the lapse of one year should therefore be taken into account. The objective being that enough time is allowed for the mukallaf to spend, of these profits, on his requirements, as well as his business. Should there be any money left over at the end of the financial year, Khums has to be paid on them. That said, we should list down that which is considered of "living expenses" so that it be exempt from those profits.

Expenditures that is exempt from profits are of two types:

a. What is spent in the process of making a profit, such as expenses on the tools, equipment, and machinery of trade/business. So is that which is spent in repairing, maintaining, or replacing such items, or buying fuel and the sort for them. Such expenses as employees' wages, transportation, storage, outlets, taxes, etc. are also deducted from the profits, whether same were spent, at intervals, during the year or paid as a lump sum at the end of the year, such as taxes.

The exemption of such expenditure is not confined to the year it is incurred. Should profit be not forthcoming until the second or third year, for example, all expenditure in the first year of business is covered by such expenditure in a general sense. We will discuss this aspect in some details in the chapter dedicated to business.

b. Annual living expenses, i.e. all that which is spent during the year on oneself and members of one's family, including that which is spent in charity, presents, prizes, hospitality, settling one's obligations, such as nadhr, kaffarah, payment of debt, expiation or compensation, what is lost or damaged, be it inadvertently of intentionally.

Included in such expenses are cars, servant, furniture, items of ornamentation, what is spent for marrying one's offspring, of which is providing them with accommodation, and setting them up in business or securing jobs for them.

What are exempt also are expenses paid for carrying out acts of worship, such as hajj and paying homage to the holy shrines, be it obligatory or voluntary.

There are though many other avenues of expenditure which vary from time to time, generation to generation, and society to society. Yet, the yardstick in determining the exemption is that the expenditure must be commonly recognized as such. Whether spending in that sphere is obligatory, voluntary, makrouh, or lawful is immaterial.

However, exempting such expenditure is conditional on it being actually spent and that it was met from the profits made. Suppose that someone donated to another all that what is needed for their annual maintenance, or part thereof, or they economized to save some money, they should not be exempt form paying Khums on the amount saved. Moreover, so long as the money is still surplus to one's needs, it remains liable for payment of Khums. For example, a person set aside an amount to spend it for their hajj; should they change their mind and not embark on the journey, for this reason or the other, that amount is deemed surplus, in which case it should be Khums taxed, should it remain thus at the end of the year, i.e. without spending it in any other avenue.

95. Payment by cheque is quite common theses days. Suppose that a person wrote a cheque of a certain amount, such as that for his living expenses; he made arrangements with the bank that the amount be debited to his account before the end of the year. Perchance, the transaction took sometime, missing the specified dated. The owner should pay Khums on this amount. The reason being that issuing a cheque per se does not render the amount outside the pale of the owner's property. It should be so, after the amount is debited to the person's account and transferred to the party in whose favor the cheque was written.

96. Should the mukallaf go over the top and spend more than his peers in social standing, what he spent should be considered as extravagance. Included in this is what is spent by way of harram, such as dinking alcohol, gambling… etc. In such a case, it would not count as part of one's normal expenses; neither would it be exempt from profits. The mukallaf should take the initiative to assess the amount unlawfully disposed of, assume it is still in his possession, and pay Khums on it.

Exceptionally high donations for charitable causes, throwing lavish parties… etc., of the type that is not commensurate with the person's social status, are not counted as normal expenses, neither are they exempt from profits. Conversely, exempting such donations and hospitality expenses is valid.

97. It has already been stressed that nothing is described as living expenses, unless it serves a purpose of living in the process. Such a need would be satisfied when that expense uses. "Use" is a diction, which is going to be used a lot; what it means is how the person goes about using his money for his annual living expense.

Accordingly, any property, in the hands of the mukallaf, be it a capital asset, such as a house not taken for residence, a suit he has not used during the year, or money lying around, such would be described as surplus to one's yearly provisions, and would therefore attract Khums, by virtue of not using same. For the "use" to materialize, it is not necessary that the mukallaf uses it himself; it suffices that any of his dependents uses it.

The exemption of this rule is non-ability of the mukallaf to meet his requirements at one go, rather gradually, such as building a house, providing for one's wedding.. etc. the reason being that what the mukallaf finishes in part counts as part of his living expense, although he is not in a position to use it. This is on condition that the money is actually spent in that avenue, as will be elaborated later.

Of the exempt things also is what the mukallaf uses occasionally, such furniture, utensils, and appliances intended for the use of guests. Should a year pass on their purchase without their being used by any guests, there is no harm in considering them as part of general living expenses, whereby no Khums should be paid on them. Of the same class are books, although the students require, yet are not used until the end of the year, and so on and so forth.

The principle is that the wider the time span for using the item, so much so that it overtakes the turn of the year, or the need is above the capability of the mukallaf that he cannot meet it from the profits of the year, "use" should not count as a condition in the expenses exempt that year.

There may be more about this subject to contend with in the forthcoming treatises.

98. Expenses exempt from Khums are not confined to the money gained and spent on one's needs; rather it covers debt incurred as a result of, say, medical expenses, buying a car, etc, or payment emanating from religious commitments, such as kaffarah, raddil madhallim… etc. which are considered part of the provisions of his current year. Should the debt be paid out of the profits he made during the year, they are exempt. Indeed, all debt incurred in the previous years should exempt if it is settled from the profits made in the year in hand, barring the debt of Khums which has a different set of rules. This is going to be the subject of the coming paragraph. Should the mukallaf be intent on not paying his debt from the profits of this year until it draws to an end, he may do so. However, if the debt was incurred during the year in hand, he should overlook at the end of the year, whereby he is exempt from paying Khums on the amount of debt. Whether the debt was incurred prior to his making or after it is immaterial. Previous years debt is not exempt, unless same is paid back to the creditors. It is noteworthy that any debt incurred in this year and carried forward to the next, cannot be exempt for a second year running, and so on.

99. As promised, we now turn to discussing the outstanding Khums from previous years.

Khums may become due on the mukallaf on the gains of the year in hand, but he decides not to pay it. This could be with the permission of the Marji' who grants him a reprieve, provided he pays later, or it could be due to disobedience and apathy. This could lead to years on end without the mukallaf's paying. Once the mukallaf repents, Khums remain a debt on his shoulders. However, he may clear this debt when he becomes financially able to do so, regardless of the cause of delay.

Should he decide to pay his debt of Khums from the profits of the current year, he should not expect to be exempt of the profits and forgo the payment of Khums. There are though two possibilities:

i. The items on which the Khums has become due are still in his possession intact. Among such items of assets are real estate, land, cars, books, currency etc. The mukallaf is required to pay Khums on the amount of Khums (for these assets). i.e. equivalent to one quarter.

For example, someone bought a property either for business or residence. The price they paid for it was, say, US $50,000. They did not pay the Khums of 10,000 on it in the year they bought it, neither from the property itself nor from any other source of profit that year.

Now, suppose that person made some profit in the following year and decided to pay the outstanding Khums. He should be paying the $10,000 plus 20% of the original price of the property, i.e. $50,000.

The reason being that since the property remained in the hands of the mukallaf alongside its Khums until its second anniversary, without paying the Khums for it, this should mean that he did not dispose of the amount of Khums, which may be considered as part of his living expenses. Should he decide to pay it from the gains of the year in hand, Khums must not be waived, i.e. it is treated in the same way as his other debts. He must pay Khums on it to start with, then settle it as a debt the Khums of the property.

ii. The capital asset, which carries a Khums liability, could have been lost of damaged after the year in which the profit was made. The outstanding Khums should take the form of debt on the mukallaf. If he decides to settle this debt from the gains of future years, he is required to pay 20% not 25%, i.e. payment of the Khums without the need to add up the Khums on the amount of Khums. This is because that the outstanding Khums is no longer representative of the actual capital asset which is no longer there physically. Accordingly, the outstanding Khums is treated as part of one's expenses, which is exempt from taxing it and overlooked from not being part of the gains of that year.

For example, a person purchased books for business or just to keep them. After Khums has become due on them, they were damaged; that is, after the lapse of one year in their hands. Khums was not paid on time. Should the person decide to pay the outstanding Khums from the gains of future years, he should pay the amount of Khums, i.e. without the extra amount of Khums on Khums.

The same applies, if the person has sold the books making some profit in the process, which he spent during the year. No additional amount of Khums on Khums should be warranted; just the Khums on the books before the money was disposed of.

The ruling in the above cases is one for the Khums on commercial activity which ends up as debt and the other, which was earmarked for one's expenses but remained unused, i.e. surplus.