Home Loan Salary Sacrifice: How It Affects Your Pay Index Across States and Industries

What Is Home Loan Salary Sacrifice?

Home loan salary sacrifice is a way to use pre-tax income to pay down your mortgage. Under this arrangement, your employer redirects part of your salary directly to your home loan lender before tax is calculated. This reduces your taxable income, so you pay less income tax and Medicare levy. However, it also lowers your gross ordinary-time earnings, which is the figure used to calculate your position on the Salary Index.

In Australia, salary sacrifice is most common in the public sector, not-for-profit organisations, and some private companies that offer salary packaging as a benefit. It is not available to all workers, and there are limits based on your award or agreement. The Australian Taxation Office (ATO) sets rules to prevent fringe benefits tax (FBT) in some cases, but home loan payments are generally subject to FBT unless the employer is a public benevolent institution or similar.

How Salary Sacrifice Affects Your Salary Index

The Salary Index benchmarks your gross annual earnings against the national line of $108,352 (index 100). If you salary sacrifice, your gross earnings drop, so your personal index falls. For instance, if you earn $108,352 and sacrifice $15,000, your new gross is $93,352, giving an index of about 86.2. This means your pay sits well below the national average, even though your take-home pay might be similar to someone earning the full amount.

It is important to note that the index is a benchmark for full-time adult ordinary-time earnings, not a measure of disposable income. Your actual financial position depends on tax, super, and other deductions. The national minimum wage sits at index 48.2, so any sacrifice that pushes your gross below that floor is not allowed. For more on how the index works, see how the index works.

State Differences in Salary Sacrifice

State pay levels vary significantly across Australia, and this affects both the potential to salary sacrifice and the impact on your index. According to the reference data, the Australian Capital Territory has the highest index at 109.9 ($119,090 annualised), while Tasmania has the lowest at 88.6 ($96,008). States with larger public sectors, such as the ACT and New South Wales (101.2), tend to have more salary sacrifice options. In contrast, states like Tasmania and South Australia (94.6) have lower average pay and fewer public sector roles, so salary sacrifice may be less common.

If you live in a high-index state and salary sacrifice, your gross earnings might still be above the national line, depending on the amount. For example, an ACT worker earning $119,090 who sacrifices $10,000 would have a gross of $109,090, still above index 100. In a low-index state like Tasmania, the same sacrifice could drop you below the national line. Explore states for more detail on regional benchmarks.

Industry Differences in Salary Sacrifice

Industry also plays a major role. The mining industry has the highest index at 154.7, but salary sacrifice for home loans is rare in mining because most workers are on high base salaries and often use salary packaging for vehicles or other benefits. In contrast, the education and training industry (index 105.5) and health care and social assistance (97.8) frequently offer salary sacrifice through not-for-profit employers. The retail trade (75.9) and accommodation and food services (72.5) industries have low indices and rarely provide salary packaging.

If you work in a high-index industry, you have more room to sacrifice without falling below the national line. A mining worker on $167,600 (index 154.7) could sacrifice $30,000 and still be above index 100. A retail worker on $82,200 (index 75.9) sacrificing even $5,000 would drop to index 71.3, well below average. See industries for a full breakdown.

Tax and Super Considerations

Salary sacrifice reduces your taxable income, so you pay less income tax. For the 2026–27 year, resident tax rates (excluding Medicare) are: nil up to $18,200, 15% from $18,201 to $45,000, 30% to $135,000, 37% to $190,000, and 45% above. The Medicare levy adds 2%. If you sacrifice $10,000 from a $100,000 salary, you save tax at your marginal rate (likely 30% or 37%), plus 2% Medicare, so your take-home pay increases by roughly $3,200 to $3,900.

However, salary sacrifice also reduces your super guarantee contributions, which are 12% of your gross salary (up to the maximum contribution base of $270,830). Lower gross means lower super contributions, which can affect your retirement savings. Always weigh the short-term tax benefit against long-term super growth.

Final Thoughts

Home loan salary sacrifice can be a useful tool to reduce tax and pay off your mortgage faster, but it lowers your gross earnings and therefore your salary index. The impact depends on your state, industry, and employer. Use the Salary Index to see where your pay sits, and check your award or agreement to see if salary sacrifice is an option. For more topics, visit topics.