A few years ago I sold my share of our family home which I received as inheritance when our marhoom Mother passed away to my younger brother. The terms at that time was that he had 7 years to pay the amount off and he can pay as he obtains funding. As such I had a zakaatable asset and each year I calculated the Zakaat payable but since I did not have any other zakaatable assets or the cash to pay off the zakaat I had not payed it out.
At the time of the agreement my brother was expecting some funds to come in to pay off the amount as well as purchase the shares of the other heirs, however circumstances changed and he was unable to finalise the purchase of the remaining shares nor was he able to pay me anything substantial.
We have therefore agreed to cancel the agreement and I have indicated that I will refund him the minor amount that he did pay and that in future if circumstances change I will sell him the share at the original amount (effectively a promisary note).
I would like to find out if the zakaat that was due on the debt is still payable now that the loan is cancelled or does the obligation fall away.
What you were owed was an intermediary debt (a debt owed because of the sale of a non-merchandise item). It is not necessary to pay Zaakat on an intermediary debt, rather once the value of the Nisaab is acquired and a year passes from the time of taking possession, only then will Zakaat be necessary (this is when one has no other assets to add the acquired cash to, such as gold, silver or cash).
If one does have assets such as gold, silver or cash, then the acquired cash will be added to these assets and Zakaat will be paid on it whenever one normally discharges his Zakaat. In an intermediary debt like the one which you have queried, a person does not need to give Zakaat on the years which have passed before he acquired the debt. It follows then that since the transaction is now cancelled, all the more reason you will not have to pay Zakaat.
Checked and Approved By:
Mufti Muhammed Saeed Motara Saheb D.B.
(رد المحتار ج۲ ص٣٠٥)
(احسن الفتاوى ج٤ ص ٢٧١)