The residual value is the amount left to be dealt with at the end of the finance lease. In a novated lease quote it is one of the most important inputs because it changes both the contractual rental and the amount remaining at maturity.
The novated lease rate and rental calculator uses the following standard car residual table as its default configuration.
Common ATO car residual percentages
| Lease term | Common minimum residual |
|---|---|
| 12 months | 65.63% |
| 24 months | 56.25% |
| 36 months | 46.88% |
| 48 months | 37.50% |
| 60 months | 28.13% |
The source methodology is ATO Taxation Determination TD 93/142. Read the ATO determination.
These figures are best described as minimum residual guidance under the ATO methodology for the relevant car/effective-life assumptions. They should not be presented as a claim that every possible lease document in every circumstance is legally compelled to use exactly the same percentage.
Why a higher residual lowers the regular rental
A lease does not amortise the whole vehicle value to zero through the regular rentals. The residual remains as a future cash flow. Holding everything else constant, a higher residual usually reduces the regular contractual rental because more value remains unpaid until maturity.
That does not mean the residual makes the vehicle cheaper. It changes the timing of the finance cash flows.
Three-year example
Suppose a car has a residual base of $60,000 and the 36-month percentage is 46.88%.
$60,000 × 46.88% = $28,128
That residual then needs to be interpreted on the same GST basis as the lease calculation. If the employee-facing residual is quoted including GST but the finance model discounts a residual excluding GST, mixing those two values will distort a reverse-rate calculation.
Is the residual the same as a car-loan balloon?
They are economically similar in one respect: both leave a larger amount for the end rather than fully amortising the principal through regular payments. But the legal documents, tax treatment and novated-lease structure are different, so use the terminology in the actual contract.
What happens at the end?
The options available depend on the lease and provider process. An employee may need to deal with the residual as specified in the lease documentation rather than assuming ownership transfers automatically. Ask the provider exactly what must happen at maturity and what GST applies.
Can the residual be changed?
For quote analysis, the GPS calculator allows an advanced residual override because provider documents can contain an exact dollar residual that is more useful than reconstructing it from a percentage. When you override it, the calculator labels it as a custom residual rather than continuing to imply it is the default ATO figure.
Check your numbers: open the novated lease calculator.
About the author: KK Neelamraju is a finance and credit professional and an Authorised Credit Representative through GPS Finance Group.
GPS Finance Group (CRN 000575797) is an Authorised Credit Representative of AFAS Group Pty Ltd (ACL 414426). AFCA Member ID 119860. General information only. Credit approval and pricing are subject to lender assessment. Tax-sensitive information should be checked against current ATO guidance and, where appropriate, with a qualified tax adviser.
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