Understanding Residual Values in Novated Leases
The Australian Taxation Office requires all novated leases to have a residual value at the end of the lease term. The residual value is like a balloon payment. A balloon payment is a lump sum that you pay at the end of a finance agreement. The key difference is that a residual value is based on a forecasted market value of the car, rather than an agreed fixed amount.
Despite some common myths, the residual value is nothing to worry about.
Let’s clear up some of the most common misconceptions.
- It’s not my car
Yes, it is. You are the registered owner, and the vehicle is insured in your name. This is a novated lease, not an operating lease. At the end of the lease term, you can buy the car outright for the agreed purchase price. If the car is worth more than this amount, it does not affect what you pay.
- My car’s actual value at the end may not equal the residual value
There is some risk here, but you can reduce it by understanding vehicle values, keeping your car well maintained, and working with the AANT Salary Packaging team to get the best purchase price from the start.
- It’s harder to sell or dispose of my car if it’s on a novated lease
Selling a novated leased car is no different from selling a car with a regular loan. The buyer pays the finance company the residual value. Any amount above that is your profit, tax free.
- What if I forget or can’t get the funds to pay out?
The AANT Salary Packaging team will contact you 9 months before your lease ends to discuss your options. This way, you’ll have plenty of time to plan and make the best decision. At the end of the initial term, you also have the option to refinance your residual for a further period of at least 12 months. This can help reduce your regular payments as well as the residual value at the end of the new term.
- My car is worth more than the residual value. I don’t want to hand it back
At the end of your lease, if the car is worth more than the residual value, the extra amount is yours to keep. With a good understanding of residual values and help from the AANT team, you can make the most of your novated lease.
