In all novated leases there is a requirement from the ATO for a residual value to exist at the end of the lease term. The residual value, often referred to as a balloon payment is set at the start of the lease term and fixed until the end giving you certainty on your repayments.
What is a novated lease residual value?
The ATO guidelines state the residual value of a novated lease should be:
Based on a reasonable valuation of estimated market value of the existing vehicle at the end of the lease.
Not less than the minimum residual values set out in ATO2002/1004 Car lease residual values on the legal database.
The ATO has determined that a motor vehicle has an effective life of 8 years.
Term of Lease | Residual Value Percentage |
1 Year | 65.63% |
2 Years | 56.25% |
3 Years | 46.88% |
4 Years | 37.50% |
5 Years | 28.13% |
Source: ATO Legal Database - Residual Values
How do I calculate residual value?
Let’s use the popular Toyota RAV4 Hybrid as an example for the below calculations (based on the below pricing from CarSales.com.au).
Example Vehicle Pricing
Estimated Price inc GST |
| $53,980.00 |
Rego & CTP | $978.24 |
|
Stamp Duty | $3508.70 | $4,486.94 |
Drive Away Price |
| $58,467.00 |
GST Savings in Novated Lease |
| $4,907.27 |
Vehicle Amount Financed |
| $49,072.73 |
Residual Value excl. GST | Percentage | Term |
$32,206.43 | 65.63% | 1 Year |
$27,603.41 | 56.25% | 2 Years |
$23,005.29 | 46.88% | 3 Years |
$18,402.27 | 37.50% | 4 Years |
$13,804.16 | 28.13% | 5 Years |
If you chose to payout the residual value at the end of the lease you would then add GST onto the amount shown above.
At Easi we are completely transparent and show both the excluding GST and including GST residual value figures on your quote so you know exactly what to expect.
Residual Value inc. GST | Percentage | Term |
$35,427.07 | 65.63% | 1 Year |
$30,363.75 | 56.25% | 2 Years |
$25,305.82 | 46.88% | 3 Years |
$20,242.50 | 37.50% | 4 Years |
$15,184.57 | 28.13% | 5 Years |
Interested in learning more? Get a quote from us today!
What are my options at the end of a novated lease?
Upgrade to a new car!
Easi will help you sell your current car and use the proceeds of sale to cover the residual value.
Re-finance your residual value and pay down the balloon further.
Payout the residual value and keep the car ending all tax savings.
Sell the car to payout the residual value.
Easi will help you sell your car through our wholesaler network, or you can opt to sell privately.
I have excess funds in my novated lease expense account, can I use them to pay off the residual amount?
No - the ATO does not allow you to use pre-tax money to payout a residual value.
Are cars always worth the residual value?
The value of any car at the end of a lease comes down to several variable factors:
The market at the time
The condition of the car and how well it has been looked after.
The number of km’s on the car.
Different brands
Toyota is a brand that has built its reputation on reliability and therefore the purchase price of used cars tend to remain strong for example.
Speak to our expert consultants to learn which makes and models tend to hold value better.
What if I sell my car for more than the residual value?
From the example above, if after 5 years you chose to sell your RAV4 with a residual value of $15,185 including GST and the buyer agreed to pay you $25,000 for the car the transaction would look like this:
The buyer pays out residual - $15,185
The buyer pays you directly - $9,815 tax free.
However, if - from the same above example - after 5 years you chose to sell that same RAV with the same residual value of $15,185 including GST and the buyer agreed to pay you just $12,000 instead, the transaction would look like this:
The buyer pays out residual - $12,000
You pay the financier the difference - $3,185
Choose Easi Experts to Assist with Novated Lease Residual Values and More
Understanding the how and why behind residual payment methods is key to better understanding the entire novated leasing process - and how it can benefit you.
This guide is one of many provided by the expert team at Easi who have expansive and in-depth knowledge of a wide range of topics related to cars and novated leasing. This includes things such as balloon payment information, breakdowns of popular car running costs, comparisons of novated leasing vs buying a car outright, and more.
Contact us today for a full quote and to help you save money on your next car - and be sure to read more guides from our Easi Experts series in our news area.
