If a novated lease budget seems like an incomprehensible world of fine-print and paper work then let us put your mind at ease, it’s not as complicated as you think.
A novated lease is a tax-effective way to finance a car, bundling all running costs into a single regular payment deducted from some of your before-tax salary. This set-up helps manage expenses like fuel or charging, maintenance, insurance, and registration, but many people have questions about the balance in their novated lease account—especially when there’s a surplus sitting there.
Keep reading if you’re wondering:
- Why is there a large balance in my novated lease account?
- Is that money still mine?
- What happens to the surplus at the end of my lease?
Why Is There a Surplus in My Novated Lease Account?
Surpluses can build up in your novated lease account for a few reasons:
- Annual costs – Some expenses only occur once a year—or thereabouts—but we set aside funds from each pay cycle to cover them. Think registration, scheduled servicing, or even tyre replacements. Depending on the length of your lease, you’ll see these amounts accrue over time.
- If you’re wondering whether you can use that surplus to pay off your residual value—the short answer is: not directly. The surplus must first be returned to your employer, who then passes it to you through payroll (after tax). Once it’s in your hands, you can use it however you like—including to help pay the residual.
- Lower Running Costs – If you spend less on some items we’ve budgeted for this will contribute to excess money in your account
- Changes in Circumstances – A change in driving habits, lower fuel prices, or fewer maintenance costs than expected can lead to unspent funds.
Fleetcare helps you stay on top of your novated lease budget—so there are no surprises, and your balance stays on track. You can always speak to our team about adjusting your budget.
Is the Surplus Still My Money?
Yes, any surplus funds are still your money. However, you can reduce your salary deductions to build out surplus funds, generally best if managed in the final year of your lease, or funds will be returned to you via your employers payroll once your lease has ended and reconciliation completed.
At the end of your lease or if you leave your employer, the surplus is usually refunded to you via payroll. As this money was originally deducted before-tax, when it’s returned to you, it will be subject to income tax.
The Australian Taxation Office (ATO) outlines how surplus lease funds are handled at the end of a lease.
What Happens to the Surplus at the End of My Lease?
When your lease ends, you generally have three options:
- Trade-In & Start a New Lease
- You can trade in your current car and start a new novated lease.
- Any surplus is refunded to you, and a new budget is set up for your next car.
- Pay the Residual Value & Keep the Car
- Any remaining balance is refunded through your employer’s payroll.
- Extend the Lease
- You can refinance the residual and continue leasing the same car—subject to the car’s age and the maximum allowable lease term.
- Surplus funds may either be adjusted into the new lease or returned to you via your payroll.
Can I Adjust My Budget to Prevent Surpluses?
Absolutely. If you notice a large balance in your account, you can adjust your novated lease budget with your lease provider.
- Regular Budget Reviews – Track your expenses and update your budget based on your actual fuel or charging, maintenance, and insurance costs.
- Flexible Budget Adjustments – Many novated lease providers allow mid-lease changes to avoid big surpluses or deficits.
- Plan for Your Lease End – If your lease is nearing its end and you have a large surplus, you can use the funds to have your car detailed, any small dints removed so it’s ready for sale or trade-in.
For more tips how to manage overspent or underspent budgets within a novated lease read our in-depth analysis.
What If I Have a Deficit Instead of a Surplus?
If your novated lease account is in deficit (meaning you overspent your budget), you will need to cover the shortfall.
- Increase Salary Deductions – Your employer may need to adjust your before-tax salary contributions to make up for the difference.
- Make a Direct Payment – Some lease providers allow you to pay the deficit out-of-pocket to balance your account.
- Review & Rebalance Your Budget – Work with your lease provider to ensure future deductions accurately reflect your expenses.
If you’re unsure how to adjust your budget, Fleetcare’s team can help you rebalance your lease to avoid surpluses or deficits.
Key Takeaways:
- Surplus funds in your novated lease account arise from annual expenses accruing over time, lower-than-expected expenses, or changes in usage.
- The money is still yours, but if refunded, it may be taxed as income.
- End-of-lease options include paying the residual, trading in, or refinancing.
- You can adjust your budget mid-lease to better reflect your actual expenses.
- If you have a deficit, you may need to increase deductions or make a direct payment to cover the shortfall.
For personalised advice, talk to your novated lease provider or speak with Fleetcare today about managing your lease budget. Contact us here.
Final Thoughts
Keeping your novated lease budget in check is key to maximising your tax savings and ensuring a smooth leasing experience. Whether you’re wondering about surpluses, deficits, or end-of-lease decisions, understanding your budget helps you stay in control of your finances.
If you have any more questions, speak with Fleetcare’s leasing experts. 🚗💨