All Novated Leases are required to have a residual value at the end of term. Many people still refer to residual values as balloon payments. The payment is designed so that the asset is not paid off completely in line with the vehicle’s depreciation schedule. The value is known at the start of the lease and also helps reduce the cost per pay cycle to you as an employee.
It’s not something to be scared of and there are many misconceptions in regards to residual values So what are the most common misconceptions ;
Purely and simply, yes it is your vehicle. It’s key to remember that this is a Novated Lease agreement and not an Operating Lease agreement or Maintained Operating Lease. Therefore at the end of term you can buy the car outright for the agreed purchase price. If the car is worth more than the listed value it doesn’t affect how much you pay for it.
It may not meet the value at the end of term. It is a risk, but by buying and correctly utilising the help of Positive’s Fleet team we can greatly reduce this risk. By getting the best possible purchase price at the initial purchase, therefore, ensuring the value is kept as low as possible. The value of your car reflects the overall market regardless if it is on a Novated Lease or not. The green vehicle with purple leather interior is going to be much harder to sell than the Silver with black trim. It is all about perspective and risk reduction and that is what our team is here to help with.
It’s not different to selling a vehicle that is under a loan agreement. The seller purchaser simply pays the finance company for the residual value and any extra profit above and beyond the value can be made as direct payment to yourself tax free. As an example if your residual value was 11,000 at the end of term and you sold the vehicle for 14,000. You would be able to keep the difference both tax free and free of capital gains as well.
Although this seems like it could happen, it rarely does. Our Fleet team work with you from approx 12 months out from the end of your lease to run through all the options available for the car and even do market valuations to ensure that Positive helps maximise your resale value or the peak time to spell the car. We can offer to refinance the vehicle into another term if you prefer to keep the car and keep on enjoying the tax savings.
Ultimately it’s your vehicle. If the car is worth significantly more than the residual value then the funds difference is yours to keep once the car is sold. Many clients through past experience have novated large 4WD and dual cabs because of this reason and they treat the sale as an extra bonus of tax free payment at the end of the term. As an example, a new Toyota LandCruiser GXL with a purchase price of $92,000 drive away would have an approx residual value of $26,000. If the employees sells the car for $65,000 they are eligible to keep the $39,000 difference
It all starts to switch a conversation and best to talk about your end outcomes and what you want to do with the vehicle both on a daily basis and long term ownership. That’s where our team of experts come in, they have seen and done it all before and more than likely can give you a few handy pointers along the way.
For some employees they may also want to investigate our novated lease zero residual option or as some call it the novated leases no residual option. Speak to our team and see how we can help demystify the process and get you driving your income further this year financial year
What happens at the end of a novated lease. It’s a common question that we get asked at Positive Salary Packaging. The residual value is set as default percentage by the ATO and can vary slightly depending on lender at the amount of travel you forecast at the initial term.
There are four key decisions towards the end of the term. Approximately 6 months from the end of the lease the team at Positive will make contact with to you discuss the options surround your lease, they fall into key four categories;
Refinance and re-package – You can have the option to potentially extend the lease period for another 12-24 or even 36 months depending on the age of the vehicle. This allows you to keep the vehicle you already have and still continue to save tax eg pay cycle with a lesser finance commitment.
Trade your vehicle in – You will also have the ability to trade your existing vehicle and order a new car. Any funds balance above the residual value is yours to keep. This is an easy and flexible way to update your car as you can continue to drive your current vehicles, whilst waiting for the new one to arrive. The dealer will pay out any funds owing and any balance remaining will be transferred to yourself
Sell – Novation to allow for a private sale format, with the payout begin made directly to the ledger, once again shortfall is the responsibility of the seller, but if your vehicle sells for more than the residual value, it is transferred through the sale process and final settlement to the seller. With the current surge on use car pricing this has become a very popular way to help increase the sale price of your car when selling to help increase the maximum return.
Payout and Own – You can also pay the residual value and choose to continue driving the vehicle. The vehicle is already registered in your name and there are no requirements to pay stamp duty. The residual value is outlined in the lease documents and it’s one of the key points that we let you know about during our initial conversations
By utilising the Novate leasing Managers at Positive Salary Packaging, we are best served to help you make an educated decision on the best way to handle your residual value given market conditions, value of the vehicles and demand.