Residual values explained
ATO minimum balloon payments, GST at lease end, and your options when the lease finishes.
What is a residual value?
The residual value (also called a balloon payment) is a lump sum payable at the end of the lease term if you want to take ownership of the vehicle. The ATO sets minimum residual percentages to ensure novated leases are treated as genuine lease arrangements, not disguised purchase loans.
ATO minimum percentages
The minimum residual depends on lease term. Shorter leases have higher residual percentages because the vehicle retains more value over a shorter finance period.
- 12 months: 65.63%
- 24 months: 56.25%
- 36 months: 46.88%
- 48 months: 37.50%
- 60 months: 28.13%
Paying the residual
The residual must be paid from after-tax (post-tax) income. You cannot use pre-tax salary sacrifice to reduce the residual below the ATO minimum during the lease term. The residual payment also attracts an additional 10% GST when you purchase the vehicle from the lease company.
On a $60,000 vehicle with a 36-month lease, the minimum residual is $28,128 (46.88%) plus $2,812.80 GST — a total of $30,940.80 from after-tax funds.
End-of-lease options
At lease end you can: pay the residual to own the car outright, refinance the residual into a new novated lease (lower monthly cost since you're financing a smaller amount), trade in the vehicle using trade-in value to cover the residual and start a new lease, or sell privately and pay the residual from sale proceeds.
Key takeaways
- Residual is a mandatory balloon payment set by ATO minimums
- Must be paid from after-tax income plus 10% GST
- Cannot be reduced with extra pre-tax payments during the lease
- Plan 6–12 months ahead — refinance, trade-in, or buyout are all valid paths