You've probably heard about 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, but 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.
How does salary sacrificing work for a mortgage?
Salary sacrificing is a three-way arrangement between you, your employer and your financier. Your employer deducts an agreed amount from your pre-tax income and pays it directly to your financier on your behalf. This is most common for novated leasing, which allows you to have part or all of the lease’s cost deducted from pre-tax pay.
For home loans, this means your weekly, fortnightly or monthly mortgage repayment is deducted from your payslip before tax. Your take-home pay is lower as a result, but your employer makes the repayment to your lender for you.
What businesses offer mortgage salary sacrificing?
Because of fringe benefits tax (FBT), 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 are employed in health care and social assistance alone. 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 2026-27 FBT year):
| Employer type | FBT concession for the years ending 31 March 2023, 2024, 2025, 2026 and 2027 |
|---|---|
| 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: Table 5: FBT treatment for certain employers, Fringe benefits tax – rates and thresholds, Australian Taxation Office | |
How to salary sacrifice your mortgage
-
Confirm your eligibility
Check with your employer or salary packaging provider that mortgage repayments are included in the benefits you can salary sacrifice and how much of the annual cap you have left to use.
-
Submit an application
Apply through your employer's salary packaging provider, nominating how much of your pre-tax income you want to direct towards your mortgage repayments, up to your annual cap.
-
Provide your loan documents
You'll usually need to supply your loan contract or a letter from your lender or broker confirming the loan amount and repayment schedule.
-
Repayments begin
Once approved, your employer deducts the agreed amount from your pre-tax pay each cycle and pays it to your lender, either directly or as a reimbursement into your account.
How much of my mortgage payments can I salary sacrifice each year?
The amount you can salary sacrifice each year depends on your employer type. If you work in the aged care, disability or not-for-profit sector, you can salary sacrifice up to $15,900 per year. Eligible healthcare workers can package up to $9,010 per year.
The main benefit of salary sacrificing is that it reduces your taxable income. Even though you're paying the same amount towards your home loan, the income tax you're charged is lower.
Case study: salary sacrificing mortgage payments
Lily earns $100,000 per year before tax ($3,846 per fortnight) in her job at a not-for-profit. She recently took out a $400,000, 30-year home loan at 5.90% p.a., with fortnightly repayments of $1,095. 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.
You can see the impact on Lily's payable tax in the first 12 months of her mortgage here:
| 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 | $77,480 | $20,520 | $2,000 | N/A |
| Yes | $15,900 | $12,557 | $84,100 | $66,668 | $15,750 | $1,682 | $5,088 |
| Home loan calculations completed with mortgage calculator, using ATO tax rates for the 2026-27 financial year. | |||||||
As the table shows, Lily would save over $5,000 on tax each year if she salary sacrificed the maximum allowable amount for her mortgage repayments.
Does a salary sacrifice agreement affect my home loan application?
Salary sacrifice agreements lower your assessable income, which can affect how much a lender is willing to offer you. This happens with novated leases, for instance.
However, because you're salary sacrificing your existing mortgage, this only comes into play after you've already been approved for the loan. Your assessable income at the time of your original application isn't affected.
It's worth being wary of this if you decide to refinance your mortgage, though, as your assessable income will likely have dropped since you first took out the loan. This could affect how much a new lender is willing to approve you for.
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 can include things like the use of a company car, accommodation allowances, food and drinks, parking and, as you might've guessed, salary sacrificing.
FBT is relevant to salary sacrificing your mortgage because this tax is payable by employers, who'll then pass the cost on to you if they offer the benefit anyway. As a result, it usually isn't worthwhile for either party.
Case study: changing jobs to a non-FBT-exempt employer
After leaving her job with the not-for-profit, Lily starts working at a bank, earning the same salary. She wants to salary sacrifice her mortgage payments, but before approving the agreement, her employer calculates it'll be hit with a significant FBT bill. Here’s 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. Instead of saving over $5,000 in tax, Lily would have to fork out more than $9,000 to cover the FBT liability, so she's clearly better off paying her mortgage with her post-tax income.
The pros and cons of mortgage salary sacrificing
Pros
-
Reduce your income tax
The main benefit is a lower tax bill, which alone can make salary sacrificing worthwhile if you're saving enough.
-
Have your repayments made for you
It takes less effort overall, since you won't need to make your mortgage payments to your lender yourself.
-
No temptation to overspend
With less money hitting your account on payday, salary sacrificing can double as a budgeting tool.
Cons
-
Most employers aren’t FBT-exempt
For most Australians, salary sacrificing a mortgage simply isn't an option, as it depends on your employer being FBT-exempt.
-
Savings may be small for low income earners
If you're in a lower tax bracket, you're less likely to see a significant benefit from salary sacrificing than a high income earner would.
-
May lower your super
Your employer would pay less in superannuation contributions based on your reduced taxable salary, which could leave you worse off in the long run.
Salary sacrifice mortgage alternatives
If you aren’t eligible to salary sacrifice your mortgage, there aren’t really any true alternatives for doing so. However, if you’re wanting help to pay it down faster, there are other ways to get ahead on your home loan:
- Offset account: an offset account is a transaction account linked to your mortgage. The balance in it reduces the amount of interest you're charged, since you only pay interest on the difference between your loan balance and your offset balance.
- Redraw facility: a redraw facility lets you make extra repayments on top of your minimum required amount, while still allowing you to access those funds later if you need them. Doing so helps you cut back on your overall interest bill.
- Super contributions: salary sacrificing into your superannuation is available to far more employees than mortgage salary sacrificing, and contributions are taxed at a concessional rate of 15%. It won't help pay off your mortgage directly, but it's another way to reduce your taxable income if your employer doesn't offer mortgage salary sacrificing.
It’s worth speaking to your accountant if you’re unsure what the best option for your specific situation is.
So, should I salary sacrifice my mortgage?
That depends on your employer and your personal circumstances. If your employer is FBT-exempt, there are clear benefits to salary sacrificing your mortgage that could save you thousands of dollars a year. An FBT-rebatable employer may also offer a smaller tax benefit, though it's unlikely to be as significant as what you'd get from an exempt employer.
If your employer doesn't fall into either category, there's no real benefit to attempting to salary sacrifice your mortgage, as the FBT liability would outweigh any tax savings. If you're eligible and decide to go ahead, it's advisable to consult an accountant or tax professional first, as this area of Australian taxation law is complex and everyone's situation is different.
