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. If you’re in a job where a mortgage salary sacrifice agreement is available, it’s important to know whether it’s a viable, worthwhile option before you start making pre-tax contributions.
What is salary sacrificing and how does it work?
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 pays them directly to your financier.
In terms of home loans, the way this would work is that your 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 paid on your behalf by your employer.
What businesses offer mortgage salary sacrificing?
Because of fringe benefits tax (FBT), which we’ll explain a bit later on, the only employers that will realistically offer mortgage salary sacrificing are those that are exempt from the tax. FBT-exempt employers include:
- Public hospitals
- Not-for-profit hospitals
- Public ambulance services
- Health promotion charities
- Public Benevolent Institutions (PBIs)
- Charitable institutions
- Religious institutions
Roughly 2.2 million people are employed in Australia between public hospitals, ambulance services and charitable and 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 the 2025-26 FBT year):
| Employer type | FBT concession for the years ending 31 March 2022, 2023, 2024, 2025 and 2026 |
|---|---|
| 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 | |
How much of my mortgage payments can I salary sacrifice each year?
There’s a limit on the amount you can salary sacrifice each year. For those working in the aged care, disability and not-for-profit industries, you can salary sacrifice up to $15,900 per year. Eligible healthcare workers can package up to $9,010 per year.
Salary sacrifice mortgage calculations
The main reason why most people salary sacrifice anything is because it reduces their 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) in her current job at a not-for-profit. 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. In the 2025-26 financial year, her salary after tax is $79,212 and she receives $3,046 in take-home pay each fortnight. She doesn’t have a HECS-HELP or any other loan debts.
Her employer offers mortgage salary sacrificing, so she decides to do that. Because she works for a not-for-profit, she can sacrifice up to $15,900 per year, with the rest of her mortgage payment made post-tax. As a result, her taxable income drops to $84,100. Her annual post-tax salary is $68,082 and she takes home $2,618 per fortnight.
You can see the impact on Lily’s payable tax in the table below:
| Salary sacrifice? | Pre-tax mortgage payment | Post-tax mortgage payment | Taxable income | Take-home salary | Income tax payable | Medicare levy | Total tax saving |
|---|---|---|---|---|---|---|---|
| No | $0 | $28,457 | $100,000 | $79,212 | $20,788 | $2,000 | N/A |
| Yes | $15,900 | $12,557 | $84,100 | $68,082 | $16,018 | $1,682 | $5,088 |
| Home loan calculations based on ATO tax brackets for the 2025-26 financial year. | |||||||
As you can see, Lily would save just over $5,000 each year if she salary sacrificed the maximum allowable amount for her mortgage repayments.
Fringe benefits tax and salary sacrifice
Fringe benefits tax (FBT) is a tax charged by the government on non-salary benefits offered by non-exempt 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 pass the cost on to you (in the case of salary sacrifice arrangements). As a result, it probably won’t 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 the start of the 2025-26 financial year, Lily changes jobs and starts working at a bank. She’s earning the same salary in this position and wants to salary sacrifice her mortgage payments. However, before approving the agreement, Lily’s employer calculates that it’ll be hit with a significant FBT bill. This is why:
- The value of the fringe benefit must be grossed up at a rate of 1.8868 (as mortgage payments aren’t GST-inclusive)
- 47% of the grossed-up value of the benefit represents the payable FBT
As a result, the annual $15,900 pre-tax mortgage payment is grossed up to $30,000. Multiplying this by 47% results in a payable FBT liability of $14,100. This would mean that instead of saving over $5,000 in tax, Lily would have to fork out more than $9,000 to cover the FBT liability. In this situation, she’s clearly better off paying her mortgage with her post-tax funds.
The pros and cons of mortgage salary sacrificing
Pros
-
Reduce your income tax
The big bonus is slashing your tax bill which, if you’re saving enough, could be worth three pros on its own.
-
Have your repayments made for you
It’s less effort overall, too, as you won’t have to worry about making the mortgage payments to your lender.
-
No temptation to overspend
With the funds dedicated to your mortgage now out of your hands and less money hitting your account on payday, salary sacrificing can become something of a budgeting tool.
Cons
-
Most employers aren’t FBT-exempt
For a majority of Australians, salary sacrificing your mortgage simply isn’t a viable option. If your employer isn’t FBT-exempt, it simply isn’t an option.
-
Savings may be small for low income earners
If you’re earning less and are in a lower tax bracket, you’re less likely to gain any significant benefit from salary sacrificing than a high income earner.
-
May potentially lower your super
You may find that you’d be worse off in the long run if you salary sacrificed your mortgage, as your employer would pay less in superannuation contributions based on your reduced taxable salary.
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, 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 an accountant or tax professional, as this area of Australian taxation law is complex and each person is different.
