Most people think carefully about starting a novated lease. Far fewer think carefully about how it ends — and that's where some expensive decisions get made under time pressure. When the residual falls due, you have five realistic paths. Understanding each one before the lease ends gives you the leverage to choose the right one rather than the most convenient one.
The residual value on a novated lease is not an estimate of what the car will be worth — it's a minimum lump sum set by the ATO at the start of the lease, calculated as a fixed percentage of the vehicle's original base price (the price excluding stamp duty, dealer delivery, and on-road costs).
The ATO publishes statutory minimum residual percentages based on the lease term and annual kilometres. For a 3-year lease at 15,000 km/yr, the minimum residual is 52.88% of the base price. A $55,000 vehicle (base price) therefore carries a residual of approximately $29,084.
This figure is set on day one and doesn't move. Whether the car is worth $35,000 or $22,000 at the end of the term, the residual remains $29,084. The relationship between that fixed number and the car's actual market value is what determines your options.
15,000 km/yr · 1 year: 65.63% · 2 years: 56.25% · 3 years: 46.88% · 4 years: 37.50% · 5 years: 28.13%. These are the ATO minimum percentages — your provider may set a higher residual, but not lower. All percentages apply to the base price, not the drive-away price.
Before you decide anything, get two numbers: the residual amount (from your lease documentation) and the current market value of your car (from Redbook, CarsGuide, or the prices of similar cars being sold privately in your area).
The difference between them determines your negotiating position for every option that follows:
Positive equity — car is worth more than the residual. You're in the stronger position. You have real value to work with whether you pay out, trade in, or sell privately.
Negative equity — car is worth less than the residual. You'll need to cover the shortfall one way or another. The options below all handle it differently.
Pay the residual lump sum from savings and the car becomes yours free and clear, with no further payments, lease obligations, or employer involvement. The salary sacrifice arrangement ends and the car is yours to keep, sell, or modify as you like.
This is financially the cleanest outcome if you have positive equity and the funds available. You're effectively buying the car at the residual price — if the car is worth more than that, you've bought it below market value.
Get the official payout figure in writing before transferring funds. Allow a few days for the finance company to process and issue the certificate of title.
Start a new novated lease on the same vehicle. The current residual becomes the new vehicle price, and a new ATO statutory residual is calculated on that amount for the next term. Your salary sacrifice continues and you avoid paying the lump sum.
Re-leasing makes sense if the car is reliable and you want to continue packaging running costs pre-tax. But do the maths carefully — as a vehicle ages, its running costs often increase (tyres, servicing, repairs) while the tax saving on a lower salary sacrifice amount may shrink. A re-lease on an older vehicle with high running costs can sometimes be less financially attractive than owning it outright.
Also consider: a second residual will be due at the end of the next term, and the car will be older and worth less then. You could find yourself in negative equity more easily on the second lease.
The dealer pays out your residual, and any equity (trade-in value above residual) is applied toward a new vehicle. You start a fresh novated lease on the new car and your salary sacrifice benefits continue uninterrupted.
This is how most novated leases operate in practice — a rolling 3-year cycle where the residual is handled by the trade-in, and a new vehicle keeps the pre-tax benefits going. It works best when the trade-in value comfortably exceeds the residual, giving you meaningful equity to put toward the next car.
If you're in negative equity, the shortfall must come from somewhere — either you pay it directly, or it gets rolled into the new finance arrangement (which means you're starting the next lease underwater).
Sell the car privately at market value, use the proceeds to pay out the residual, and keep any surplus. Private sale typically achieves a higher price than a dealer trade-in — often 10–15% more for mainstream vehicles — which can meaningfully improve your position if you have positive equity.
The process requires coordinating with the finance company — you'll need a payout figure, and the sale needs to settle at or above the residual so you can clear the finance in full before transferring ownership to the buyer. Some finance companies offer a short settlement window for private sales; confirm the process before listing the car.
This option doesn't lead naturally to a new novated lease, so factor in whether you want to continue salary sacrificing on a new vehicle and how you'd bridge the gap while the sale is underway.
Return the car to the finance company. The car is valued, and if it's worth less than the residual, you pay the shortfall. If it's worth more, the surplus may be returned to you (terms vary by provider — check your lease documentation).
Handing back is the most straightforward option administratively but is rarely the best financial outcome. If you have positive equity, you're likely leaving money on the table compared to a trade-in or private sale. It's worth considering when the car has significant mechanical issues, the private sale process feels too complex, or you need to exit the lease quickly.
Check the lease agreement for condition requirements before handing back — excess wear, damage above a defined threshold, or kilometres significantly over the agreed annual amount may result in additional charges.
3-year novated lease, $55,000 base price vehicle, 15,000 km/yr. ATO residual: 52.88% × $55,000 = $29,084.
Re-leasing (or re-novating) is worth understanding in more depth because it's often presented by providers as the default path — and while it frequently is the right call, the decision deserves deliberate consideration.
When you re-lease, the maths works like this: your current residual ($29,084 in the example above) becomes the new "purchase price" for leasing purposes. A new ATO statutory residual is calculated on that amount. For a 3-year re-lease at 15,000 km/yr, that's 52.88% × $29,084 = $15,381 — the new residual due at the end of the next term.
The salary sacrifice amount is recalculated on the lower base price, which means the monthly sacrifice is lower — and therefore the tax saving is smaller. On a significantly depreciated vehicle, the tax benefit of re-leasing may be modest compared to the simplicity of just paying it out and owning the car.
Two questions worth asking before re-leasing: Is the vehicle likely to have materially higher running costs in the next three years? And will the new residual ($15,381 in this example) likely be below the car's market value at the end of the next term? A car that depreciates heavily — particularly diesel vehicles or models being phased out — can leave you in negative equity at the second residual date.
Negative equity at the end of a novated lease — where the car's market value is below the residual — is manageable but requires clear thinking about which option minimises the damage.
Private sale is often the best path in negative equity. A privately sold car typically achieves 10–15% more than a dealer's trade-in valuation, which can be the difference between covering the residual and not. Even a private sale at residual value means you exit cleanly without paying a shortfall.
Rolling the shortfall into a new lease (via a dealer trade-in arrangement) is the most common outcome but the most expensive long-term. You start the next lease with the shortfall already baked into the finance — paying interest on a debt that has nothing to do with the new car's value.
Check the actual market value of your car independently — don't rely on your provider's estimate or assume the ATO residual reflects reality. Run a Redbook valuation and compare it to similar cars listed for sale in your state. Do this at least 3–6 months before the lease ends so you have time to plan rather than react.
Six months before the lease ends is the right time to start this process. That gives you enough runway to get a realistic market valuation, request an official payout figure, compare your options without time pressure, and list the car privately if that's the right call — private sales take time.
Providers will contact you as the lease approaches its end date, typically with a re-lease offer. That offer isn't a deadline. You're not obligated to accept it or respond immediately. Evaluate it alongside the other four options using the numbers specific to your car and your situation.