You can salary sacrifice your mortgage repayments if your employer allows it. This means your take-home salary shrinks, but so does the amount of tax you pay. It's a cost-effective benefit but one that most employers can't offer because they have to pay fringe benefit tax (FBT) on the repayments.
Salary sacrificing for your mortgage repayments is mostly available to people who work for FBT-exempt not-for-profit organisations, like hospitals or certain charities.
How salary sacrificing your mortgage repayments works
Under a home loan salary sacrificing arrangement, your employer pays off your monthly mortgage repayment directly from your pre-tax income. This means your monthly paycheque will be smaller.
How salary sacrificing works with super
And at tax time, you'll pay less tax. That's a pretty good deal. The catch, unfortunately, is most employers don't offer this benefit because they have to pay tax on the benefit instead.
Home loan salary sacrifice – example
- Your annual salary is $90,000 before tax, or $7,500 a month.
- Your mortgage repayment is $1,200 a month ($14,400 annually).
- Your employer offers to pay your $1,200 monthly repayments and reduces your monthly salary to $6,300 a month before tax.
- Your taxable income has shrunk from $90,000 to $75,600.
- Instead of paying $21,517 in taxes (including the Medicare levy) your tax bill shrinks to $16,549.
- You save $4,968 in taxes.
In the above example the employer would have to pay the FBT on the $14,400 mortgage repayment benefit.
The ATO calculates FBT by multiplying the value of the benefit at 1.8868.
- 1.8868 x 14,400 = $27,169.92
And then this amount is taxed at 47%, equalling a tax obligation of $12,770 to the employer. This is why salary sacrificing for an employee's mortgage repayments is really only offered by organisations with FBT-exempt status.
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Can I salary sacrifice my mortgage repayments?
You can salary sacrifice your mortgage repayments if:
- Your employer offers this benefit to employees.
- Your employer is an FBT-exempt organisation (a public hospital, charity or non-profit).
- Your lender accepts salary sacrifice payments on your mortgage (if it doesn't you could refinance your home loan).
If you want to find out whether you can salary sacrifice your home loan repayments you just need to ask your employer.
If you need expert guidance on your mortgage or taxes, it's worth speaking to a mortgage broker or an accountant.
Is salary sacrifice a fringe benefit?
Some forms of salary sacrifice arrangements are considered fringe benefits by the ATO. This includes benefits like cars, shares or other goods. It also includes loan repayments or other payments like school fees.
Work-related items such as protective gear, software or computers are exempt from FBT.
Superannuation is not considered a fringe benefit. According to the ATO super contributions under salary sacrifice arrangements "are considered employer contributions. These are not fringe benefits if the contributions are made to a complying super fund."
Which organisations are FBT exempt?
Not-for-profit organisations may qualify for FBT-exempt status. According to the ATO the following types of organisations are exempt:
- Public benevolent institutions (charities whose work relates to poverty, sickness or disability).
- Health promotion charities (registered by the Australian Charities Commission and endorsed by the ATO).
- Public and not-for-profit hospitals.
- Public ambulance services.
FBT exemption thresholds
There are thresholds for FBT exemptions. The total value of the benefits offered can't exceed $17,000 for hospitals and ambulances or $30,000 for public benevolent institutions and health promotion charities.
These thresholds are for the "grossed up value" of the fringe benefits. That's the dollar amount of the benefit you receive, multiplied by 1.8868.
What about the First Home Super Saver Scheme?
Under the First Home Super Saver Scheme first home buyers can salary sacrifice some of their income into their superannuation to be used as a deposit for a home.
You can make extra contributions to your super, get taxed at the lower rate of 15% and then withdraw the money to form part of your deposit.
While this is a form of salary sacrificing it is different to the mortgage repayment arrangement outlined on this page.
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Frequently asked questions about home loan salary sacrifice