Understanding Residual Values in Novated Leases
The Australian Tax Office requires that all Novated Leases have a Residual Value applied to the lease agreement at the end of the relevant lease term. The Residual Value is similar to a Balloon Payment, with the key difference being that the Residual Value is based on a forecasted market value rather than an agreed-upon value. Despite common misconceptions, the Residual Value is not something to be feared.
Lets explore some of the most common myths:
It’s Not My Car
Yes, it is. You are the registered owner, and the vehicle is insured in your name. Remember, this is a Novated Lease agreement, not an Operating Lease agreement or Maintained Operating Lease. Therefore, at the end of the term, you can buy the car outright for the agreed purchase price. If the car is worth more than the listed value, it doesn’t affect how much you pay for it.
My Cars Actual Value at the End of the Term May Not Equal the Residual Value
This is a risk, but by understanding vehicle valuation behaviours, ensuring your vehicle is well-maintained, and utilising the help of AANTs Salary Packaging team during the purchase process, we can greatly reduce this risk by ensuring the best possible purchase price.
It’s Harder to Dispose of or Sell My Car if Its on a Novated Lease
There is no difference between selling a vehicle that is on a novated lease and one that is under a loan agreement. The purchaser simply pays the finance company for the residual value, and any extra profit above and beyond that value can be made as a direct payment to you, tax-free.
What Happens if I Forget and Can’t Get the Funds to Payout?
The AANT Salary Packaging team will touch base with you 12 months out from the end of your lease to run through all the available options. This proactive approach ensures that you are well-prepared and can make informed decisions.
My Car is Worth More Than the Residual Value, I Don’t Want to Hand It Back to the Bank
Ultimately, it is your vehicle. If the car is worth significantly more than the residual value, the difference in funds is yours to keep once the car is sold. By understanding the realities of Residual Values and leveraging the expertise of AANTs Salary Packaging team, you can navigate the end of your novated lease with confidence and maximise the benefits.
Do you have more questions and want to speak to our team?
Feel free to contact us anytime.
