May 29, 2026
Novated Lease Residual Value Explained
1
min read
The residual value on a novated lease is the ATO-set balloon payment due at the end of your term. It's straightforward, not a catch. Leaselab walks you through your options upfront so there are no surprises at lease end.
What Is Residual Value in a Novated Lease?
A novated lease residual value, also called a balloon payment, is the amount owing at the end of your lease term before you can own the car outright. Some people think it sounds like a catch. A part of the fine print that they don’t tell you about.
We’re here to bust those myths. It’s actually pretty straightforward once you understand what it is. In many cases, it can be genuinely advantageous to know how it works. You just need someone to explain it properly.
Scroll on to learn more about the novated lease residual value.
In Summary:
- Your regular lease payments don't cover the full purchase price of the car. The residual is simply the remaining amount needed to complete the purchase at the end of your term.
- It's set by the Australian Taxation Office (ATO), not your leasing company.
- It's calculated as a percentage of the vehicle's original drive-away cost. This amount is fixed at the start of your lease and doesn't change.
- At lease end, you can pay it, trade in, sell it or refinance it, but if your car sells for more than the residual, the profit is yours, tax-free.
What is a residual value, and how is it calculated?
The residual value is the remaining amount payable at the end of your novated lease before you take ownership of the vehicle.
During your lease term, your regular payments cover:
- The vehicle lease cost
- Running costs (fuel or charging, rego, insurance, servicing, tyres)
They do not cover the full purchase price of the car. The leftover portion sits at the end of the lease as the residual. The ATO mandates residual values on all Australian novated leases to legally distinguish a lease from a loan.
Novated lease residual value table
The ATO uses a sliding scale based on the length of your lease and applies it as a percentage of the original vehicle cost. Here's how it breaks down:
How do I work it out?
The formula is simple: vehicle cost × ATO residual percentage = your residual value.
What do the figures mean?
Shorter lease means a higher residual. A longer lease has a lower residual. The car retains more of its value over a shorter period, so the figure left at the end reflects that.
Do the kilometres affect the residual?
The ATO sets residual values based on lease term and original vehicle cost. In most cases, kilometres don't change your residual amount. However, if you're a high-kilometre driver, the ATO does allow for reduced residual percentages below the standard rates to reflect your car's likely lower market value at lease end.
It's worth discussing your annual kilometre estimate with your novated lease team member upfront.
How can a residual work in your favour?
The ATO percentages are deliberately conservative. This means your car's actual market value at lease end is often higher than the residual owing.
If that happens:
- You sell or trade in the vehicle
- Proceeds cover the residual
- Any amount above the residual is tax-free profit, yours to keep
Let’s look at this in numbers. Here’s what a residual would look like for an electric car below:
Please note: This table is indicative only to illustrate a residual payment. Final numbers will be different from the above.
*Estimated market value: Actual resale value will vary based on condition, kilometres, and market conditions at time of sale.
What are my options at the end of the lease?
You’ve got four main options once your lease term winds up. None of them really requires you to magically produce a large sum of cash from thin air.
A good novated lease provider will reach out well before your lease ends, typically around 12 months out, to walk you through your options and help you plan the transition. There should be no nasty surprises.
Can I negotiate my residual value?
The ATO sets minimums, so residuals generally can't be lowered. With one exception, unusually high annual kilometres may qualify for a reduced residual to reflect the car's expected lower market value. Here are some more things to consider about the residual:
- Fixed at signing: The residual is locked in at the start of your lease. Market movements don't change it
- Includes GST: The residual figure is GST-inclusive
- After-tax only: You cannot salary sacrifice the residual. It must be paid with after-tax money
Calculate your residual value with Leaselab
It’s nothing to be concerned about, but it’s good to be aware that the ATO requires it to be a part of every novated lease in Australia.
The key is going in with clear information upfront. Know your residual before you sign. Understand your options at lease end. And choose a car that works hard for you, both while you're driving it and when it comes time to hand it on.
Want to see what your novated lease residual could look like? Find your dream car, run the numbers with our novated lease calculator or speak to one of our consultants today.
What is a balloon payment (is it the same thing as a residual payment)?
Yes. The terms are used interchangeably. Both refer to the lump sum owing at the end of your lease term.
Can I pay the residual early?
Yes, but it triggers early termination of the lease, which can be costly. Early payout is calculated as remaining lease payments with the residual and any termination fees. It’s best to speak to us before going down this path.
What if my car is worth less than the residual at lease end?
You'd need to cover the shortfall. This is why vehicle selection matters. Make sure to choose makes and models known to hold their value well in the Australian market.
Is the residual a hidden fee?
No. It must be clearly disclosed upfront in your quote before you sign anything. If it isn't, that's a red flag.
Does a higher residual mean lower repayments?
Yes, but it means a bigger lump sum at the end. The best lease structure balances affordable repayments with a realistic balloon payment. A good consultant will help you find that balance.
Can I change my residual mid-lease?
No. The residual is fixed at signing and cannot be changed during the lease term.
If you have questions, you can call us at any time on 1300 888 594, or request a callback or email us.
