Morning

I delved into some research and discussed with a couple of my contacts re this, and have summarised all info provided back to me as follows. (And using some guided input from my contacts so forgive the third party references).

The assessment of the FBT is is largely accurate, but there is one critical "middle ground" concession  may have been missed: the FBT Rebate.

As a registered charity that is not a Public Benevolent Institution (PBI), PACA likely falls into the FBT Rebatable Employer category. This significantly changes the cost-benefit math for staff.

 Summary of Advice

The reality

PBI status is rare. You are likely correct that PACA is not a PBI, but you are likely a "Rebatable Charity." 

FBT is a "Penalty Tax." Without a concession, FBT on a mortgage ($100 benefit) costs the employer ~$97 extra. 

Admin will be the real killer. Small NFPs often find the audit and compliance costs outweigh the staff morale boost. 

The Missing Piece: The FBT Rebate

While you don't get a full exemption like a PBI, as a registered charity endorsed for income tax exemption, you are likely entitled to a 47% FBT Rebate.

 * How it works: You still calculate and pay FBT, but the ATO gives you a 47% discount on the total tax bill.

 * The Cap: This applies to the first $30,000 of "grossed-up" taxable value per employee.

 * The Catch: Even with a 47% rebate, providing a mortgage benefit is still "expensive" compared to a PBI. For a standard employer (non-PBI), the employee usually only sees a benefit if they are in the highest tax bracket (45%).

Relevant comments to the items raised and requested for clarification

"Employee pays the FBT with after-tax funds"

This is called an Employee Contribution. It is the most common way to "zero out" the FBT liability for the employer.

 * The Math: If the employee pays $1 of after-tax money, it reduces the taxable value of the fringe benefit by $1.

 * The Strategy: For a mortgage, the employee would sacrifice some pre-tax salary, but they would also have to make an after-tax contribution to ensure PACA doesn't get hit with a tax bill. For many employees, the "math" results in a very negligible gain once you factor in your admin fees.

"Additional financial management and audit costs"

Implementing this in-house is a significant burden:

 * FBT Returns: You must lodge a return every year (due May 21).

 * Reportable Fringe Benefits (RFBA): These must appear on the employee's Income statement.

 This affects their HECS/HELP repayments, Child Support, and Medicare Levy Surcharge.

 * Audit Risk: Errors in gross-up calculations are a common ATO audit trigger.

Suggestions/recommendations

If PACA wants to provide this incentive without the "headache," consider these possible steps:

A. Outsource to a Salary Packaging Provider

Do not run this through your own payroll software. Companies like Maxxia, Smartsalary, or AccessPay specialize in NFPs.

 * Benefit: They handle the FBT calculations, substantiation (checking mortgage statements), and reporting.

 * Cost: They charge the employee a fortnightly fee (usually $10–$20). This keeps PACA’s overhead near zero.

This may or may not be something to consider but does add costs to be balanced against contractor time/costs. 

B. Start with "FBT-Exempt" Items Only

Instead of mortgages (which attract FBT), offer "otherwise deductible" items or exempt items:

 * Work-related items: Laptops, mobile phones, or professional memberships.

 * Superannuation: You already do this; it’s the most "bang for buck" for the employee with zero FBT risk.

C. Use a "Cost-Neutral" Policy

If you proceed, your policy should state that the arrangement must be cost-neutral to PACA. This means the employee covers:

 * The FBT liability (via the rebate and their own contributions).

 * The external provider's admin fee.

 * Any increase in WorkCover premiums (since these are often based on "total remuneration" including fringe benefits)

Final thoughts/view after my discussions and “requests for help” from more informed people than me.

Unless PACA is willing to engage an external packaging provider, we should not offer mortgage salary sacrifice. The risk of a clerical error by a part-time bookkeeper resulting in an ATO penalty is high, and the actual "cash in pocket" benefit for an employee at a non-PBI charity is often too small to justify the paperwork.

While PACA should work to provide optimum employment standards and conditions, they have to be balanced with the reality of cost and overhead where our funding sources are limited and always under pressure. 

Hope it helps

Ian

Ian English

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From: Lynda de Koning via PAC Australia Board <board@ask.paca.org.au>
Sent: Tuesday, April 7, 2026 4:48:22 PM
To: Peter Ross via PAC Australia Board <board@ask.paca.org.au>
Subject: [PAC Australia Board] Salary Sacrifice expertise and experience

• Salary sacrifice payments such a mortgage and car payments attract FBT tax, which is the employer's responsibility with the ATO. 
• It is possible for the employee and employer to enter into an agreement where the employee part or fully pays the FBT component to the employer with after tax funds (in which case the employee should consider the cost benefits of their request). 
• PACA is a NFP and registered charity, but we do not have an FBT exemption in place. 
• FBT exemptions (to a capped amount) only apply for public benevolent institutions and health promotion charities, registered by the Australian Charities and endorsed by the ATO. As such, I don't believe PACA would be eligible. 
• PACA will incur additional financial management (time) and audit costs in delivering a salary sacrifice program including FBT.