Can You Salary Sacrifice Your Mortgage?

If you’re wanting to know if you can salary sacrifice your mortgage repayments, find out more about your options with Savvy.

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, updated on August 7th, 2023       

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Salary sacrificing your mortgage is possible in Australia, although there are numerous considerations to take into account before approaching your employer to make such a request.  Read about the regulations surrounding whether you may be able to salary sacrifice your mortgage, and the potential advantages to doing so, with Savvy.

Is it possible to salary sacrifice your mortgage in Australia?

Yes – it’s possible to salary sacrifice your mortgage, but whether this arrangement will be of any financial benefit to you will depend on who you’re employed by and whether they have a salary packaging arrangement which includes salary sacrifice.  Salary packaging means you are paid in a bundle that includes both wages and other benefits (which can include salary sacrifice). 

Whether you can salary sacrifice your mortgage payments will also depend on whether your home loan lender will permit payments via salary sacrificing.  Such arrangements are only available for owner-occupied home loans, not investment property loans. 

It’s important to note that there are more benefits for high income-earners (those in the top tax bracket) who may use salary sacrificing home repayments to reduce their taxable income compared to low or medium earners.  In general terms, if you earn an income under $100,000 p.a., it may not be worthwhile salary sacrificing your mortgage.

What is salary sacrificing and how does it work?

Salary sacrificing is an arrangement between an employer and an employee whereby the employer deducts money from pre-tax income for an agreed purpose, which may be:

  • to pay a car loan such as novated leasing
  • to pay additional contributions into superannuation, or
  • to pay mortgage repayments

The benefit to the employee from this arrangement is that there’s less income earned to pay income tax on (because the agreed payments have come out of pre-tax earnings).  It may also offer a significant benefit if it moves the employee into a lower income tax bracket.

However, because the employer has benefitted the employee by reducing their taxable income, the employer must pay Fringe Benefits Tax on the benefit paid to the employee.

What is Fringe Benefits Tax (FBT) and how does it affect salary sacrifice for a mortgage?

FBT is a tax which is levied on any benefits an employer provides to an employee (which is not in the form of salary or wages).  Examples of fringe benefits which employers may provide include:

  • allowing an employee to use a company car for private use
  • supplying free goods, tickets to major events or gym or sporting club memberships
  • offering free services or discounts on loans

FBT is a separate tax to income tax and must be calculated by the employer and paid annually. 

The reason FBT is relevant to salary sacrificing your mortgage is because since this arrangement costs the employer, there are often limits imposed on salary sacrificing or employers share the FBT cost with the employee.  As such, salary sacrificing for a mortgage isn’t always beneficial to either the employee or the employer.

Who are the employers who may offer salary sacrificing for a mortgage?

There are employers who are exempt from paying FBT.  With these employers, salary packaging (including salary sacrificing mortgage repayments) are much more common and cost-effective for both sides of the agreement.  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.

These FBT exempt employers are permitted by the Australian Taxation Office to provide FBT benefits to employees up to the specified capped limits, which are (as of 2021):

  • $17,000 for an employee of a public hospital or ambulance service
  • $30,000 for a charity or PBI

In addition, some employers are entitled to claim a 47% FBT rebate up to a maximum of $30,000 for each employee.  These include some not-for-profit organisations, trade unions, employer associations and some educational institutions.

If you can salary sacrifice mortgage repayments and decide to do so, it would be a good idea to consult a financial advisor or an accountant, as this area of Australian taxation law is highly complex and dependent on your salary tax bracket and your overall financial situation.

Can your salary sacrifice mortgage repayments? More questions answered

How do I know if my employer is FBT exempt?

Ask your employer if they are FBT exempt.  In addition, the Australian Taxation Office (ATO) is able to provide this information, as well as many factsheets explaining the regulations around salary sacrificing a mortgage.

Does my employer have to salary sacrifice if I ask for it?

No – salary sacrificing as part of a salary package is voluntarily negotiated between an employer and an employee on an individual or, in the case of a unionised workforce, group basis.  An employer does not have to agree to any salary sacrifice arrangement.

Can I ask my employer to salary sacrifice in one lump sum at the end of the financial year?

No – the ATO does not permit salary sacrificing in arrears or with a lump sum – it must be done as part of the employee’s normal pay cycle, which is either weekly, fortnightly or monthly.

Will I lose out on superannuation if I salary sacrifice my mortgage repayments?

Yes – you may find once you complete some detailed calculations that you’d be worse off if you salary sacrificed your mortgage, because your employer would pay less superannuation contributions based on your lower, reduced taxable salary.

What happens to my mortgage salary sacrificing arrangement if I want to change jobs?

Should you wish to leave your employer and start a new job, you will have to make alternative arrangements with your lender to pay your mortgage and, if appropriate, re-negotiate salary sacrificing arrangements with your new employer.

Do I have to voluntarily pay my lender during a home loan salary sacrifice agreement?

No – in many cases, this is arranged via a direct debit between your employer and your lender, meaning you don’t have to worry about being heavily involved in the process.  This can help you save on time and worry, potentially moving the repayment of your loan to the back of your mind.

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