What is salary sacrificing?
Salary sacrificing, or salary packaging, is a deal between you and your employer that sees you forgo some of your pre-tax salary, instead receiving another benefit of a similar value. This can reduce your taxable income and therefore, how much income tax you pay.
Most Aussies can choose to salary sacrifice into their superannuation, while those in certain jobs or industries might have more packaging options, called fringe benefits, to choose from. Popular fringe benefits include:
- Cars (via novated leases),
- meal and entertainment cards, and even
- rent or mortgage repayments.
Can you salary sacrifice into a mortgage?
It’s possible to salary sacrifice into a mortgage, but not all employers across all industries will offer this as an option.
Who can salary sacrifice?
You’re more likely to be able to use pre-tax income to pay your mortgage if you:
- Work for the public health care system: Healthcare workers can often salary sacrifice up to $9,010 per year
- Work for a not-for-profit organisation: Not-for-profit workers can often salary sacrifice up to $15,900 per year
Your mortgage must be on a property you live in. You can typically only salary sacrifice towards an owner-occupier home loan, not an investment loan.
You might also be able to salary sacrifice beyond superannuation payments if you work for a religious organisation or a company that’s willing to take the brunt of extra taxes (though this is rare).
How does salary sacrificing into a mortgage work?
By salary sacrificing into a mortgage, or taking on other fringe benefits, you may be able to reduce your taxable income by the value of the salary sacrifice.
For example, if you earn $90,000 a year, you might expect to pay around $17,500 of income tax in the 2026-27 financial year (before considering any deductions or the Medicare levy).
But, if you’re a nurse working at a public hospital, you might be able to salary sacrifice a little over $9,000 each year.
If you have a mortgage and make, say, $20,000 in repayments each year, you might choose to salary sacrifice towards those repayments, which could effectively reduce your taxable income to $81,000.
An $81,000 annual income would attract around $14,800 of income tax — a potential tax saving of around $2,700 in the 2026-27 financial year.
Of course, if you have a higher income, you might fall into a higher income tax bracket and, as a result, stand to save more by reducing your taxable income. The opposite is also true if you have a lower income.
How to set up salary sacrifice into a mortgage
If you're eligible, you'll typically arrange salary sacrificing through your employer's salary packaging provider.
If the provider offers mortgage repayments as a packaging option and your loan qualifies (it generally needs to be in yours or your spouse's name and tied to a home you live in), you’ll likely be able to provide proof of the home loan, and hey presto.
The amount you choose to salary sacrifice towards your mortgage repayment is typically reimbursed into your bank account each pay cycle.
Why don’t all employers offer salary sacrificing into a mortgage?
While salary sacrificing can help employees save tax, it typically demands an employer take on an additional tax burden, called Fringe Benefits Tax (FBT). However, certain employers are offered FBT concessions or exemptions, allowing them to offer salary sacrificing to their employees.
That’s also why workers in the public healthcare industry can typically salary sacrifice less than workers in not-for-profits. Different industries are provided different FBT concessions or exemptions, which impacts the fringe benefits packages they typically offer.
If you salary sacrifice more than the allowed caps, your employer may be hit with a bill for extra tax.
What you should know before salary sacrificing
Salary sacrificing can be complicated and can catch out some employees unaware of potential fallout. Here are some of the key things to be aware of if you’re considering salary sacrificing:
- Your super guarantee payments shouldn’t change
Your employer should pay your super guarantee payments (12% of your earnings) as if you’re not salary sacrificing. If that isn’t the case, you should check in with your employer and, if they don’t fix the issue, you can report them to the ATO. - Your HECS-HELP repayments can be complicated
If you have a HECS-HELP debt, your employer must withhold extra tax to cover your compulsory repayment. However, many employers don’t consider salary sacrificed income when working out how much to set aside each year. If you have a HECS-HELP debt and want to salary sacrifice, it may be a good idea to set aside some money for tax time in case you get a surprise bill. - Your reportable fringe benefits can affect government benefits
While salary sacrificing can reduce your taxable income, Centrelink and other agencies may use your entire income, including fringe benefit amounts, when assessing you for certain pensions or payments.
Other mortgage-related tax saving strategies
If salary sacrificing isn't available to you, or you're looking for more tax-effective ways to manage your home loan, you might consider the following strategies.
Claiming a mortgage interest tax deduction
While you generally can't claim the cost of interest for an owner-occupier home loan, this can change if you use part or all of your property to earn income.
For example, if you run a business from a home office, rent out a room, or lease out the entire property, you may be able to claim a portion of your mortgage interest as a tax deduction.
You’ll generally only be able to claim a portion related to the percentage of your home used for that purpose, though. Additionally, using your home for business purposes or leasing part or all of it out can have Capital Gains Tax (CGT) implications.
If you’re tossing such activities up, it’s important to seek out professional tax and financial advice first.
First Home Super Saver Scheme (FHSSS)
If you're yet to buy your first home, the FHSSS can help you withdraw voluntary superannuation payments (plus associated earnings) to help fund your deposit.
Voluntary super contributions of up to a certain value are taxed at a concessional rate of 15%, rather than your marginal tax rate.
Again, it’s worth doing your own research and seeking advice before relying on the scheme.
