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Novated Lease Residual Value Explained

26/08/2021 by Lania Mason in Novated Leases

When it comes to purchasing a car, customers are spoilt for choice in the way that they can purchase. Customers can take out a personal loan, take out a car loan, or pay cash, but many Australian drivers are enjoying the bigger savings and getting into their next vehicle with a novated lease.

For buyers looking to smooth their budget and save on tax, novated leasing is a great alternative. Novated leasing is a salary sacrifice arrangement, which means your vehicle and associated running costs are bundled into a single payment, which is deducted from your pre-tax salary. You will enjoy great fleet discounts, GST savings and a reduced taxable income, along with the convenience of a single payment for all vehicle expenses.

When customers reach out to us for a quote, we are often asked “‘Why does my novated lease have a residual?”.

A novated lease has to have a residual value at the end of the lease due to the Australian Tax Office (ATO) based legislation. The key fact to understand here is that the Australian Tax Office set the residual guidelines for all vehicle and asset leasing in Australia.

What is a residual value?

The residual value, also known as a balloon payment, is the payment required by the Australian Tax Office at the end of a novated lease term. The ATO provide a scale of Residual Value ‘minimums’ (these are not set in stone in fact). The intent of the Residual Value is to reflect a likely market value at the end of the lease term. The ATO minimum is generally a very liberal value, when compared to most sales values of vehicles at lease end. As such, vehicles usually sell for more than the residual value.

How is the residual value calculated?

The residual value is set by the Australian Tax Office and is shown in the scale below. The residual value is calculated by multiplying the cost of the vehicle by the applicable percentage according to your lease term.

Term of Lease  Residual %  
12 Months  65.63%  
24 Months 56.25%  
36 Months 46.88%  
48 Months 37.50%  
60 Months 28.13%  

What happens at the end of a novated lease?

We will be in touch before your lease ends to discuss your residual payment options, which include:

  1. Trade in, trade up - Trade in your existing vehicle to Fleetcare (or sell it privately) and upgrade your car with a new lease.
  2. Double down - Double your savings by refinancing your existing vehicle and leasing a new vehicle at the same time.
  3. Refinance - Refinance your residual payout for another lease term.
  4. Payout - Payout the residual amount and the car is yours.

When it comes to novated leasing, we calculate the residual amount for you upfront, and it is included in your Fleetcare Novated Lease quote removing any surprises. For more information about novated leasing, talk to one of our team on 134 333.

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