A salary sacrifice mortgage is a way to use pre-tax income for repayments, potentially reducing your taxable income. However, not all employers offer salary sacrifice arrangements for mortgages. Understanding the benefits, drawbacks, and eligibility requirements can help you decide if this strategy suits your financial situation.
What is Salary Sacrifice?
Salary sacrifice, also known as salary packaging, is an arrangement where an employee agrees to receive a lower annual salary in exchange for certain benefits, such as mortgage repayments or superannuation contributions. This strategy allows individuals to cover expenses using pre-tax income, reducing their taxable earnings and potentially lowering their tax bill.
In some cases, salary sacrifice can be used to make monthly home loan repayments. However, not all employers allow mortgage payments under salary sacrifice arrangements. Many organisations only permit repayments for investment properties rather than owner-occupied homes.
Salary sacrifice can help employees pay off their home loan faster by reducing their taxable income and increasing the portion of their salary directed toward mortgage repayments. However, it’s essential to understand any potential fringe benefits tax (FBT) implications before entering into a salary sacrifice agreement.
Can You Salary Sacrifice Your Mortgage?
Many Australian workers can salary sacrifice various expenses, but mortgage payments are not commonly included. In most cases, employers only offer remuneration packaging for property loans, not owner-occupied homes. However, some not-for-profit and government organisations may provide home financing options.
Employers must approve salary sacrifice for a home loan, and the arrangement must comply with tax laws. Entering into a salary sacrifice loan repayments plan could help you reduce your home debt faster, but it’s crucial to confirm whether your employer offers this benefit.
How Salary Sacrifice Home Loans Work in Australia
Salary sacrificing works by redirecting part of your pre-tax salary to mortgage repayments. This reduces your taxable income, which may result in a lower income tax bill. However, FBT may apply in some cases, which can offset the tax savings.
Your employer must agree to a salary sacrifice arrangement and deduct the agreed amount before calculating income tax. The amount you sacrifice is used for loan repayments, which may help pay off your home debt faster. Some industries, such as healthcare and education, are more likely to offer property financing benefits.
Who’s Eligible for a Salary Sacrifice Mortgage?
Workers can salary sacrifice various expenses, but salary sacrifice for mortgage repayments depends on employer policies. Not-for-profit and government employees are more likely to have access to salary sacrifice mortgage repayments. Private sector workers should check if their employer offers salary sacrificing for home loans.
The Australian Taxation Office (ATO) determines if a salary sacrifice arrangement is exempt from FBT. Some organisations may provide this arrangement for your home loan repayments under specific conditions. Before entering into a salary sacrifice agreement, ensure your employer allows mortgage salary benefits.
Benefits of Salary Sacrificing a Mortgage
One key benefit of salary sacrificing is the potential to reduce your taxable income. This strategy allows you to direct pre-tax dollars towards your mortgage, lowering your tax bill.
Other benefits of salary sacrificing include:
- Using salary to make extra repayments and potentially reduce interest payments.
- Paying off your mortgage faster by increasing monthly repayment contributions.
- Lowering taxable income and improving cash flow.
Drawbacks of Salary Sacrificing a Mortgage
While salary sacrificing towards a mortgage has benefits, there are also some drawbacks:
- Not all employers allow salary sacrifice for home loan repayments.
- Fringe benefits tax (FBT) may apply, reducing potential tax benefits.
- Exchanging salary for benefits may impact take-home pay and superannuation contributions.
Salary sacrificing may not be the best repayment strategy, depending on your employer’s policies. Consider speaking with an expert broker to explore alternatives to salary sacrificing.
How to Salary Sacrifice Mortgage Payments
If you’re entitled to salary sacrifice mortgage repayments, follow these steps:
- Check if your employer offers salary sacrificing for mortgage payments.
- Confirm whether the arrangement is exempt from FBT.
- Determine how much pre-tax salary you can contribute towards your mortgage repayments.
- Consult a financial expert to ensure tax benefits outweigh potential drawbacks.
- Set up the salary packaging or total remuneration packaging agreement with your employer.
It’s important to review your financial situation before making extra mortgage repayments through salary sacrifice. A mortgage broker can help you assess your options.
Alternatives to Consider for Mortgage Repayments
If your employer doesn’t offer salary sacrificing, consider these alternative mortgage repayment strategies:
- Making extra repayments directly to your home loan can reduce interest costs and help you pay off your home loan faster. Even small additional payments can make a big difference over time.
- Using an offset account to lower interest costs. The more funds you keep in your offset account, the less interest you pay on your home loan.
- Refinancing to secure a lower home loan rate. A mortgage broker can help you compare lenders and find a more competitive option to reduce your mortgage costs.
- Exploring the First Home Super Saver Scheme. If you’re a first-time buyer, this scheme lets you use pre-tax contributions to your superannuation to save for a deposit faster.
According to the ATO, salary packaging allows employees to pay less tax on the portion of their income they sacrifice. However, not all employers offer this benefit. If you’re eligible to salary sacrifice, check with your employer about whether you can salary package your mortgage. If not, the strategies above can still help you manage your home loan repayments effectively.
Is Salary Sacrificing a Mortgage Right for You?
Before choosing a salary sacrifice mortgage arrangement, consider these factors:
- Your employer’s policy on mortgage salary benefits.
- Potential FBT implications and whether you’ll need to pay FBT.
- The impact on your superannuation and take-home pay.
Whether salary sacrifice for mortgage repayments is beneficial depends on your employer. If you’re unsure, a mortgage broker can provide expert guidance.
Get Expert Advice on Salary Sacrifice and Mortgage Repayments
If you’re considering salary sacrificing a mortgage, speaking with an expert mortgage broker can help. Kaleido Loans provides expert advice on home loan repayments, tax benefits, and salary sacrifice mortgage repayments. We help you navigate employer offers, assess financial benefits, and find the best way to pay off your mortgage faster.
Contact us today to explore your mortgage options and take the next step towards your financial goals.
