Residual value information

But what does all this mean?

When looking at any novated lease calculator it is important to understand what is included and importantly what is not included. On a novated lease calculator the provider can change the way fuel, tyres and scheduled services are calculated, which will reduce the amount allocated to the running costs to make their quotes look cheaper—but in the end you could be paying a lot more. It is very important to understand what is in each of the running cost budgets and how they are calculated. At the end of this explanation you will be able to do a quick check of your current budgets and see what’s right and what’s missing!

The calculations

Residual value

When your lease ends, there is a final, lump-sum payment required to own the car, often called a "balloon payment" or residual value. Because you’ve been paying for the car using tax-effective deductions through your employer, the ATO doesn't allow you to repay the vehicle value in the same way you would with a standard loan.

Instead, the tax rules require that you pay out the car's remaining market value at the very end. Think of it as a final settlement to officially move the car's title from the leasing arrangement into your name.

Good news – because there is a residual value at the end, your repayments are cheaper during the lease term. Most people use these lower finance payments to get into a more expensive car.

The residual value is an ATO-set percentage based on the lease term, with a buffer of approximately 5% either side of required rates. Because a novated lease is a finance lease, the residual is calculated as a percentage of the vehicle purchase price. ATO minimum guidelines by lease term are set out below.