What is the residual value?
Throughout your lease, the ATO requires a minimum balloon payment — the residual value — that you owe at the end of the term. This is not a fee or a penalty; it is the remaining portion of the car's cost that was not covered by your lease payments. The ATO sets minimums by term length:
Your decision at lease end largely comes down to one question: is the car's current market value above or below the residual? That gap — or lack of it — determines which option is most financially advantageous.
The 4 options at lease end
Option 1: Pay the residual — own the car outright
You pay the residual value as a lump sum and take full ownership of the car. No more lease payments, no more salary packaging for this vehicle. The car is yours.
When this makes sense: The car's market value is comfortably above the residual, meaning you are buying an asset for less than it is worth. This is common with EVs that have held their value well, or when used car prices are elevated. It also suits people who are happy with the car and want to avoid the administrative overhead of another lease arrangement.
Watch out for: Using savings to pay the residual means those savings are now tied up in a depreciating asset. If you have mortgage debt at a higher interest rate than a car loan, there may be better uses of that lump sum.
Option 2: Refinance the residual — keep the car, extend the term
Rather than paying the residual as a lump sum, you refinance it into a new lease or loan arrangement. You continue driving the same car but start a new payment schedule based on the residual amount.
When this makes sense: You like the car and do not want the hassle of sourcing a new one. Refinancing into a new novated lease also means you continue benefiting from salary packaging — your pre-tax contributions continue, and you keep getting the income tax saving. The car is already paid off in terms of GST (that was captured on the original purchase), but the ongoing pre-tax payment benefit remains.
Watch out for: After 3+ years, the car is likely out of its standard manufacturer warranty. Servicing and repair costs may increase, and these will still come from your running cost budget. Also, a second lease on the same car does not generate another GST saving — that only applies to the original purchase.
Option 3: Trade in or sell — use proceeds to cover the residual
You sell or trade in the car. If the market value exceeds the residual, you pocket the difference. If the market value is below the residual, you need to make up the gap from your own pocket — this is called being "underwater" on the lease.
When this makes sense: You want a different car, or the car's market value gives you equity to work with. EVs in Australia have generally held their value well, making this a viable option for most leases that started 2022–2024.
Watch out for: Private sale typically gets you 10–15% more than a dealer trade-in, but takes more effort. Factor this in before accepting a trade-in offer. Also check whether your novated lease provider needs to be involved in the sale — some arrangements require the provider to facilitate the transaction since they hold the vehicle title.
Option 4: Start a new novated lease — get a new car
The most common choice for regular novated lease users. Your current lease ends, you settle the residual (via trade-in, sale, or payment), and immediately start a new novated lease on a new vehicle. This restarts the entire tax-saving cycle.
This option also gives you access to the latest EV technology — important in a market where battery range and features improve substantially every 2–3 years. Each new novated lease on a new vehicle also triggers a fresh GST saving on the purchase price.
How to know if the car is above or below its residual
About 2–3 months before your lease ends, check the car's current market value using:
- RedBook — the industry standard for Australian used car valuations
- Carsales / CarExpert — check listed prices for identical make, model, year, and km
- Your novated lease provider — most will commission a valuation for you
Compare that market value to your residual (check your lease documents or ask your provider). The gap between these two numbers is the key figure for your decision.
What does your provider need from you?
Approximately 90 days before your lease ends, your novated lease provider will typically contact you to discuss your options. You do not need to wait — you can contact them proactively. Tell them which option you are considering and they will walk you through the paperwork.
If you are starting a new lease on a new car, providers can often arrange a seamless transition where the old lease ends and the new one starts on the same date, avoiding any gap in salary packaging.