When you hear the word ‘sacrifice’, apart from getting the eponymous Elton John song stuck in your head, you probably think of giving something up, which can make you feel sad.
But in the context of salary sacrificing – also known as salary packaging – to sacrifice is to rejoice. An arrangement between you and your employer, where you pay for some items or services straight from your pre-tax income, salary sacrificing can lead to great savings. Purchasing a car or computer, paying for childcare, or contributing money to super and your home loan pre-tax, for example, are all examples of salary sacrificing.
It can essentially reduce your taxable income and put more money in your pocket.
How does the salary sacrifice scheme work?Do companies have to offer it?
Most non-government organisations (NGOs) and charities allow their employees to salary sacrifice, as well as some businesses. In many cases, employers will offer salary sacrifice into super, but may restrict the packaging of other benefits.
To find out whether you are eligible for salary sacrificing, you first need to ask your employer. You can also check your entitlements under the Fair Work Act 2009.
Can mortgage payments be salary sacrificed?
Yes they can, but not all organisations offer the option. It’s best to ask your company what it offers and bear in mind that salary sacrificing your mortgage is only available for owner-occupied homes.
Lenders will differ in how they enable you to salary sacrifice but most will allow it. To find out more about how different lenders enable you to salary sacrifice, speak to one of our online mortgage brokers.
How much are you allowed to salary sacrifice?
If there are no limitations specified in the terms of your employment, there is no limit to the amount you can salary sacrifice. However, according to the ATO, you should also consider whether the:
- additional salary you wish to sacrifice will cause you to exceed your concessional (before-tax) contributions cap and attract additional tax – this cap limits the amounts that can be contributed to your super fund and still receive the concessional tax rate of 15%;
- salary amount you sacrifice will attract Division 293 tax – this occurs when you have an income and concessional super contributions of more than
- $300,000 in one year, before 1 July 2017
- $250,000 in one year, from 1 July 2017.
For tailored financial advice, it’s a good idea to speak to an accountant or financial adviser.
What to do next
- Calculate how much you can borrow.
- Talk to an expert about your options for salary sacrificing your home loan
This information is general in nature, and you should always seek professional advice when making financial decisions.