The residual value is the most consequential number in your novated lease — yet it's often the least understood. It's the lump sum owing at the end of the term, set at the start using ATO statutory percentages. It directly affects your monthly payment, your equity position at lease end, and what options you have when the term finishes. This guide explains exactly how it's calculated, how to read it in a quote, and what you need to plan for at the end of your lease.
A novated lease is structured like a loan with a balloon payment. Rather than repaying the full vehicle cost over the lease term, you make monthly payments on only part of the vehicle's value — the rest is deferred to the end as a lump sum called the residual value.
This structure is what keeps monthly payments lower than a standard fully-amortising loan for the same vehicle. But the residual doesn't go away — at the end of the lease, it must be paid, refinanced, or covered by the proceeds of the vehicle's sale.
The ATO sets statutory minimum residual values for novated leases, expressed as a percentage of the base vehicle price. These minimums exist to prevent employers and employees from setting the residual artificially low (which would make the monthly payments artificially high and the salary sacrifice — and therefore the tax saving — correspondingly larger).
The residual is always calculated on the base vehicle price — the vehicle's value excluding stamp duty, registration, and CTP insurance. Not the drive-away price you paid at the dealer. This is an ATO requirement: the cost price of the car for FBT and residual purposes excludes government charges. A $55,000 drive-away vehicle might have a $52,782 base price — the residual applies to $52,782, not $55,000.
The minimum residual percentage depends on two things: how long the lease runs, and how many kilometres you drive per year. Higher km usage leads to faster depreciation, so the ATO sets lower residual minimums for high-km drivers.
| Annual kilometres | 2-year lease | 3-year lease | 4-year lease | 5-year lease |
|---|---|---|---|---|
| Up to 15,000 km | 65.63% | 52.88% | 43.75% | 37.50% |
| 15,001 – 25,000 km | 56.25% | 46.88% | 37.50% | 28.13% |
| 25,001 – 35,000 km | 50.00% | 40.63% | 31.25% | 21.88% |
| 35,001 – 45,000 km | 43.75% | 34.38% | 25.00% | 15.63% |
| Over 45,000 km | 37.50% | 28.13% | 18.75% | 9.38% |
The highlighted cell (52.88% for 15,000 km/yr over 3 years) is the most common combination in practice — the standard commuter lease. Providers default to the ATO minimum unless you request a different residual structure.
The km band you select affects both your residual percentage and your FBT calculation. If you underestimate your annual kilometres and actually drive more, you may end up in a higher km band than your residual assumed — meaning the car depreciates faster than the ATO's assumed rate, and the residual exceeds market value at lease end. Be realistic about your actual annual driving. Round up rather than down.
Notice that the residual is subtracted from the base price to determine how much is being repaid via monthly instalments — but the full drive-away price is financed (because stamp duty and LCT are financed into the novated lease). This is the correct methodology and matches how providers and the Veercal novated calculator work.
The residual acts as a balloon payment in the loan calculation. A higher residual reduces your monthly payment — you're deferring more of the cost to the end. A lower residual increases the monthly payment but reduces the balloon.
| Residual setting | Residual amount | Monthly finance payment | Total payments (36mo) | Balloon at end |
|---|---|---|---|---|
| ATO minimum (52.88%) | $27,911 | $981 | $35,316 | $27,911 |
| Higher residual (60%) | $31,669 | $862 | $31,032 | $31,669 |
| No residual (0%) — illustrative only | $0 | $1,686 | $60,696 | $0 |
The table illustrates the trade-off clearly. A higher residual cuts the monthly payment but means a much larger sum due at lease end. The ATO minimum is the balance the tax law requires — you can go higher (larger balloon, smaller payment) but not lower.
The ATO residual is a tax law construct, not a market prediction. The actual value of your car at lease end may be higher or lower than the residual — and that gap is your equity position.
The ATO residual tables are based on general depreciation rates. Some vehicles categories consistently outperform the ATO schedule (good equity position at lease end); others underperform.
Before signing a 3 or 5-year lease, check estimated residual values on Redbook for vehicles of the same make, model, and age. If a 3-year-old version of the car you're leasing is already selling at or below the ATO residual percentage of today's new price, that's a useful signal.
Battery EVs have generally held value well, but the market is evolving quickly — new models, improving range, and price reductions by manufacturers (particularly Tesla) have created downward pressure on some used EV prices. The FBT exemption makes the novated lease financially compelling regardless, but check current Redbook values for the specific model you're considering before assuming positive equity at lease end.
When the lease term ends, you have four main options. The right choice depends on your equity position.
You pay the residual amount to the finance provider, they discharge the security interest, and you own the car free and clear. No more monthly obligations. If you have positive equity (car is worth more than the residual), this is effectively paying fair value for an asset worth more. If you're underwater, you're paying more than the car is worth — but you own it.
Take a new personal loan for the residual amount and continue making monthly repayments. Common when you want to keep the car but don't have the cash for a lump sum. You'll pay interest on the refinanced amount. See our end of finance guide for a full comparison of refinancing vs paying outright.
The dealer pays out the residual and applies any positive equity as a deposit contribution toward your next vehicle. If you have negative equity, the shortfall is rolled into the new loan. If you're considering another novated lease, you can structure the new lease to start on the same day the old one ends — your employer payroll simply continues the deduction.
If you have positive equity, selling privately typically yields $2,000–$5,000 more than a trade-in (you keep the dealer margin). The proceeds are used to pay out the residual, with any surplus going to you. Logistics are slightly more complex but straightforward if done in the right order.
When your lease is approaching its end, enter your residual amount and the car's current market value into the Veercal end-of-term calculator. It shows all four options side by side with your specific numbers — including the refinancing monthly payment, trade-in equity position, and private sale net proceeds.
The lease term is one of the most important decisions you make at the start. Here's how to think about it.
If you leave your employer during the lease, the novation ends and you take over the lease personally. This is manageable, but not ideal mid-term. If there's any uncertainty about how long you'll be with your employer, a shorter term reduces exposure. See our eligibility guide for more on what happens when you change jobs.