Novated Lease Residual Values (Balloon Payments)

Large ‘balloon payment’ due at the end of your novated lease
Find out how it's calculated
What are your options when it's due?

In our novated lease residual value guide:

Written byShaun McGowanReviewed bySean Callery

Last updated22 December 2023

Novated lease residual values

A novated lease residual value, also known as a balloon payment or lump-sum payment, is the amount required at the end of a novated lease term for you to own the vehicle.

It represents the remaining (residual) value of the vehicle at the end of the lease term.

The Australian Taxation Office (ATO) sets the minimum residual values usually allowed for different lease terms.

These apply to new and used car novated leases.

ATO minimum residual value percentages

The ATO guidelines on residual values are based on a minimum percentage of the vehicle cost (e.g. amount you purchased the car for) over the lease term.

The table below shows the ATO’s minimum values.

A lower minimum may be allowed if the value of the asset is likely to be lower than the calculated residual based on a fair estimate.

For instance, if you are adding a lot of mileage to the car, you may want a lower residual. This is best discussed when taking out your novated lease.

Lease Length	Residual Value Percentages
12 Month Lease	65.63%
24 Month Lease	56.25%
36 Month Lease	46.88%
48 Month Lease	37.5%
60 Month Lease	28.13%

The benefits of a residual are pretty simple. Your regular salary sacrifice car payments are considerably lower than other types of car finance (e.g. car loans).

Instead you make a large one-off payment at the end of the lease term.

You can find the residual amount of your novated lease by multiplying the cost of the vehicle by the applicable percentage according to your lease term. The residual should also be shown on the quote provided to you by a novated lease company.

You can see in the table below how the residual value will be calculated according to the length of your novated lease deal.

Your options to pay out your residual at the end of the lease term

You’ll have some options at the end of your novated lease:

Refinance the vehicle over an additional lease term
Pay out the remaining balance on your car to own it outright
Trade in the car and use the money you receive to cover the residual on your lease

This remaining balance is your residual amount. Understanding how it is calculated and how it works can save you money and even make a profit.

See, if you choose a vehicle with a strong resale value, you'll most likely be able to sell your car at the end of the lease for a higher amount than your residual payment. In this instance, any difference is yours to keep as tax-free profit. It's one of several advantages of a novated lease.

The residual payment on a novated lease is similar to a car loan balloon payment but there are differences between the two options.

This comparison shows the potential savings a novated lease offers over a 5-year term, compared to financing a vehicle with a car loan or paying for it outright with cash.

The comparison includes car running costs (e.g. car insurance) for five years based on 15,000km driven annually.

The example is based on a purchase of a 2023 Tesla Model 3 RWD, with a purchase price of $66,100 in NSW (with a novated lease residual value of $18,967). The comparison assumes an annual pre-tax salary of $120,000 and incorporates the fringe benefits tax exemption for eligible electric vehicles with a novated lease.