Minimum residuals for a novated lease

ATO Residual Guidelines

For a vehicle to be novated, the ATO established a number of guidelines, one of them being... the finance needs to be established as a lease and has to have a residual (Balloon payment). That residual amount is determined by the term of the lease and the total vehicle purchase price including GST, as being a 'Bona fide' lease.

Should a vehicle novated not be a 'Bona fide' lease, the employer would be liable for 'Residual Fringe Benefits' (FBT Tax Act), on the employees motor vehicle car expenses.

Residual Percentages.

Lease Term Years
1
2
3
4
5
ATO Minimum Residual %
65.63%
56.25%
46.88%
37.50%
28.13%

Establishing a residual value percentage.

Different events within novated leasing can have an impact on the way the finance is set up, in some cases it can also affect the FBT base value
A good question to start with is : Is this the first time the asset has been seen by a financier/employer?

John wants to finance a brand new car for $40,000 on a 3 years term.

As John's car is brand new, it has not been novated previously nor owned by the company previously.
The residual should be calculated using the 3 year at 46.88% = $18,752
( Purchase price incl GST x Residual percentage )

Sam wants to refinance his $18,752 residual from his 3 year lease, for a further 2 years

Sam's car has been novated through his current employer, the re-novation can be looked upon as an extension to the original term and would also retain the original FBT value.
The residual should be calculated using the (3 + 2) 5 year at 28.13% = $11,252
( Original purchase price x Residual percentage )



Further information by reading ATO Interpretative Decision - Income Tax: car lease residual values : ATO ID 2002/1004 Income Tax

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