Borrow with your meals and entertainment allowance!
Certain government and non-government organisations such as public and private hospitals, schools and charity groups pay a portion of their employees’ income as a tax-free component.
Effectively, a portion of your salary is deducted before tax in order to fund a range personal and work-related expenses such as meals, entertainment and car maintenance and fuel costs.
There aren’t many lenders that will “add back” these meal and entertainment deductions to your income so it’s all about providing the right income evidence to the right lender so you can borrow the amount you need for your home loan.
How much of this allowance will be accepted?
Is your meals and entertainment allowance regular and ongoing and doesn’t exceed $5,000 per year?
Your net income alone may not be enough to “service” or meet the bank’s borrowing power requirements but by adding these allowances back, you can potentially borrow at a higher Loan to Value Ratio (LVR).
Some lenders can add back 100% of this allowance so you could potentially borrow up to 95% of the property value as a regular home loan.
Meals and entertainment cards are one of the most common fringe benefits that we deal with!
Call us on 1300 889 743 or complete our free assessment form to discover if you qualify for a meals and entertainment allowance mortgage.
How do I qualify?
There are only a handful of lenders that will take into account fringe benefits like meals and entertainment cards.
The ones that do will only accept part of this income, typically 50-80% but our best lender actually accepts 100% of this income when calculating your borrowing power.
The only typical requirement that you must have been with your current employer for at least 3 months (passed probation).
To prove that your meals and entertainment card is regular and ongoing, your most recent payslip should meet lender requirements under as long as it shows:
- The salary packaging arrangement.
- The pre-tax meal and entertainment deductions.
Sometimes the lender may ask for two consecutive payslips to confirm that these deductions, along with your income, are consistent.
How does it work?
Let’s say that Adam works for RailCorp as a safety inspector.
He earns a gross income of $120,000 per year plus 9.5% in compulsory superannuation payments (SGC).
Under RailCorp’s salary sacrifice scheme, Adam packages $10,000 as an untaxed portion to fund:
- Meals and entertainment at $200 a month ($2,400 a year).
- Part of his motor vehicle payments since he sometimes uses his car for business trips ($633.33 per month or $7,600 per year).
- The remaining $110,000 will be subject to tax as normal.
In this case, Adam’s payslip should reflect a net (after-tax) income of $6,592.67 per month, a gross taxable income of $110,000 per annum and salary sacrifice items as pre-tax deductions.
The meal and entertainment portion of $200 per month ($2,400 a year) forms part of general living expenses so the bank can include them in his living expenses figure.
That means the full $2,400 can be added back to his annual net income.
What about car allowances?
If you receive car allowance as part of your salary sacrifice package, car lease payments and maintenance and/or fuel allowances (depending on your salary package agreement) can all be added back to your income with a couple of our lenders.
However, with a car lease, your actual lease payment is considered as a “sensitised” expense.
For example, if your car lease payment is $1,500 per month but your salary sacrifice is $1,000 per month, then some lenders will add back this $1,000 to your net income while your actual expense for your car reduces to $500.
So instead of your annual net income being $95,000, your home loan application can potentially be assessed as you earning a net income of $101,000 instead.
You’re still increasing your borrowing power either way!
Be careful of FBT rules!
For non-government employees that receive a meal entertainment allowance, the Australian Taxation Office (ATO) has capped this amount at $5,000 as a single grossed up cap.
That means as long as you stay within the $5,000 threshold, it won’t be counted under the wider fringe benefits tax scheme (FBT) that applies to certain government and charity organisations such as hospitals and public schools.
Any amount that you receive that exceeds the $5,000 cap will be considered when the ATO calculates your FBT tax exemption.
Currently, employees of public benevolent institutions and health promotion charities have a standard $30,000 FBT exemption cap (this will be $31,177 for the first year of the measure, due to the Temporary Budget Repair Levy) and employees of public and not for profit hospitals and public ambulance services have a standard $17,000 FBT exemption cap (this will be $17,667 for the first year).
It’s important to speak with your account since this shouldn’t be used as financial advice and the Australian tax framework changes on a regular basis.
It’s also best to speak to them to ensure that you’re making decisions with your employer that are in your best financial interests and, most of all, that you’re operating within tax law.
Do you receive a meals and entertainment allowance?
Discover if you qualify for a meals and entertainment allowance mortgage by speaking with one of specialist mortgage brokers on 1300 889 743.
Alternatively, you complete our easy free assessment form and we can get back to you with some home loan options.
We’re experts in helping Australians that have unusual employment or earn extra income that is not accepted by most banks.