Written by You’ve probably heard about novated leasing and the benefits of salary sacrificing to pay for your car, so you’re wondering whether you can do the same with your home loan. The answer to that question is… yes! However, it may not be an option for everyone.
Want to know more? We’ve got you covered. You can read about how it works and whether it may be available to you right here in Savvy’s detailed guide to mortgage salary sacrificing!
What is salary sacrificing and how does it work?
First and foremost, salary sacrificing involves a three-way arrangement between you, your employer and your financier. Under this agreement, your employer deducts loan or lease payments from your pre-tax income and sends them directly to your financier.
In terms of home loans, the way this would work is that the weekly, fortnightly or monthly mortgage payment would be deducted from your payslip. This means your take-home pay would be lower, but your mortgage payments would be made for you.
What’s the benefit of salary sacrificing your mortgage payments?
The main reason why most people salary sacrifice anything is because it reduces your taxable income. This means that even though you’re paying the same amount for your home loan, the income tax you’re charged will be lower. Let’s take a look at an example of how this might work:
Lily is earning $100,000 per year before tax (or $3,846 per fortnight) at her current job. She recently took out a $400,000, 30-year home loan at 5.90% p.a. to purchase her new place, which comes with fortnightly repayments of $1,095.
Her employer offers mortgage salary sacrificing, so she decides to do that. As a result, her fortnightly pay falls to $2,751 and her annual take-home salary is $71,526 (before tax). You can see the impact on Lily’s payable tax in the table below:
| Salary sacrifice? | Take-home income | Take-home salary | Income tax payable | Medicare levy | Overall tax saving |
|---|---|---|---|---|---|
| No | $3,846 | $100,000 | $20,788 | $2,000 | N/A |
| Yes | $2,751 | $71,526 | $12,246 | $1,431 | $9,111 |
Calculations based on tax brackets for the 2024-25 financial year.
As you can see from this example, the potential tax savings by salary sacrificing a mortgage are significant. However, what we haven’t discussed yet is the cost of offering salary sacrificing, and that is Fringe Benefits Tax.
What is Fringe Benefits Tax and why is it important for mortgage salary sacrificing?
Fringe Benefits Tax, more commonly known as FBT, is a tax charged by the government on non-salary benefits offered by employers. This may be for things like the use of a company car, accommodation allowances, food and drinks, parking and, as you might’ve guessed, salary sacrificing.
The reason FBT is relevant to salary sacrificing your mortgage is that this tax is payable by employers, who will then generally pass the cost onto the employee making use of the fringe benefit (in the case of salary sacrifice arrangements). As a result, it may not be beneficial for either party. Let’s revisit the previous example to include FBT and show why it doesn’t work for most employers:
Before approving the agreement, Lily’s employer calculates that it’ll be hit with a significant tax bill. The two main costs to be included are:
- 47% of the fringe benefit’s value is taxable
- This portion is taxable at a gross-up rate of 1.8868
Using these calculations, we can work out that the tax payable on Lily’s salary sacrifice agreement is:
- $100,000 – $71,526 = $28,474 in benefits
- $28,474 x 47% = $13,383
- $13,383 x 1.8868 = $25,251 in FBT liability
This is why most businesses won’t offer this arrangement, as no one would benefit from it. However, that isn’t the case for all businesses.
So, what businesses might offer mortgage salary sacrificing?
Fortunately, some employers are exempt from paying FBT and others can claim a rebate on the FBT paid. Salary packaging (including salary sacrificing mortgage repayments) is much more common and cost-effective for both sides of the agreement if you’re working for one of these providers. FBT-exempt employers include:
- Public hospitals
- Not-for-profit hospitals
- Public ambulance services
- Health promotion charities
- Public Benevolent Institutions (PBIs)
- Charitable institutions
- Religious institutions
Special FBT concessions also apply to benefits provided to employees in certain uncommon situations, such as when relocating, being posted overseas or travelling and working in a remote area.
FBT-exempt employers are permitted by the ATO to provide FBT benefits to employees up to the specified capped limits, which are (as of 2024):
| Employer type | FBT concession for the years ending 31 March 2021, 2022, 2023, 2024 and 2025 |
|---|---|
| Public benevolent institutions (other than public hospitals) and health promotion charities | FBT exemption capped at $30,000. Salary packaged meal entertainment and entertainment facility leasing expense benefits capped at $5,000. |
| Public hospitals, not-for-profit hospitals and public ambulance services | FBT exemption capped at $17,000. Salary packaged meal entertainment and entertainment facility leasing expense benefits capped at $5,000. |
| Rebatable employers – certain registered charities, non-government and not-for-profit organisations | FBT rebate of 47% capped at $30,000. Salary packaged meal entertainment and entertainment facility leasing expense benefits capped at $5,000. |
Source: Fringe benefits tax – rates and thresholds, Australian Taxation Office
The pros and cons of mortgage salary sacrificing
How do I find out if my employer offers mortgage salary sacrificing?
The best policy here is simply to ask. If your place of work fits into one of the categories we’ve listed above, they may be able to offer this arrangement, but each workplace is different. Speak to someone in management at your workplace to find out what they can offer.
What happens if I change jobs?
That depends on where you move to. If your next place of work is also FBT-exempt or rebatable and offers salary sacrificing for mortgages, you may be able to move your agreement over and continue reaping the tax rewards.
However, if your new job doesn’t offer salary sacrificing or isn’t eligible for FBT exemptions or rebates, you’ll simply have to go back to paying off your home loan the old-fashioned way.
Regardless of whether you change jobs, it’s worth constantly monitoring your situation and adjusting it to suit your needs. For instance, a pay decrease could render your tax benefits almost irrelevant if they’re too small.
So, should I salary sacrifice my mortgage?
That answer depends on your preferences as a borrower and, most importantly, where you work. If your employer is FBT-exempt and the amount being sacrificed is below the threshold, there are clear benefits for doing so that could save you thousands of dollars.
An FBT-rebatable employer may also offer a tax benefit, though it’s likely to be noticeably smaller than what you’d receive from an exempt business. However, if your place of work doesn’t fit into either of these categories, there’s no good reason for you to attempt to salary sacrifice your mortgage.
If you can salary sacrifice mortgage repayments and decide to do so, it’s advisable to consult a financial advisor or accountant, as this area of Australian taxation law is highly complex and dependent on your salary tax bracket and overall financial situation.
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