If you’re wanting to know if you can salary sacrifice your mortgage repayments, find out more about your options with Savvy.
Fact checked
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.
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.
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:
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.
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:
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.
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:
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):
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.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
