Pay the residual, refinance it into your company, re-lease or sell: what each end of novated lease option means for a director's cash flow and FBT.
Business Owners Hub
Novated Lease · Residual Value · Company Directors
The residual at the end of a novated lease is not a bill you have to find in cash. If you are a director employed by your own company, you can pay it, refinance it into the business, re-lease, or sell, and each path changes your cash flow and your FBT position differently.
Quick Answer
At the end of a novated lease you can pay the residual and keep the car, refinance the residual, re-lease, or sell or trade in the car to clear it. A company director has one more path: the company buys the car with business finance, which keeps cash in the business but brings the FBT question back. The general rules on residuals sit in our balloon payments and residual values guide; this insight is about what a director should do with theirs.
Also called: novated lease residual, novated lease balloon. Residual is the ATO's word for the amount left at the end of the lease; balloon is what most drivers search for. They mean the same lump sum.
What are your options at the end of a novated lease?
At the end of a novated lease you can pay the residual and keep the car, refinance the residual, re-lease, or sell or trade in the car and use the proceeds to clear what is owed. Put simply: keep it, sell it or roll it. Every end of lease choice is a version of one of those three.
- Pay the residual. You hand over the lump sum, the financier transfers the car, and you own it outright.
- Refinance the residual. A new loan pays the residual. For a director, that loan can sit with you personally or with your company.
- Re-lease. You start a new novated lease, either on a new car or, with some financiers, on the same one.
- Sell or trade in. The sale price clears the residual. If the car is worth more, the surplus is yours; if it is worth less, you fund the gap.
The residual value is fixed in the contract, but the residual is a decision, not a bill. How you fund it, who ends up owning the car, and whether a fringe benefit continues are all still open when the end of lease letter arrives.
For a company director employed by their own Pty Ltd, the refinance option splits in two, and the business side is the one most salary packaging providers never raise. If you trade as a sole trader, a novated lease is not open to you in the first place, and our post on novated leases for sole traders explains why.
| Choice | What you need | Cash flow | FBT position | Best when |
|---|---|---|---|---|
| Pay the residual in cash | Funds for the full residual | One lump sum, then no repayments | A car you own personally is generally not a fringe benefit | You have spare cash and plan to keep the car for years |
| Personal car loan | Approval on your personal income and credit file | Repayments from your after-tax pay | Generally no FBT on a car you own and pay for yourself | The car will be mostly private use |
| Company buys it with a chattel mortgage | Approval on the company's trading and the car's value | Repayments from the business, cash stays in the company | A company car available for your private use generally attracts FBT again | The car is used in the business and the company is trading well |
| Re-lease | Your company willing to keep salary packaging | New pre-tax deductions from your pay | FBT continues under the new lease, as before | You want a new car on a package, or the same car for longer |
| Sell or trade in | A buyer or dealer, settled through the financier | Surplus to you, or a shortfall to fund | The benefit ends when the car goes | The car is worth more than the residual |
Sources: Australian Taxation Office, Car leasing and FBT, last updated 12 January 2023. Read 10 November 2026. FBT positions are general and depend on how the car is used.
Why does a novated lease have a residual, and can it be changed?
A novated lease has a residual because the ATO sets a minimum residual by lease term, and the lease has to meet it to be treated as a genuine lease for tax purposes. The ATO explains the conditions for a car lease in its guidance on car leasing and FBT, linked under the table above. The longer the term, the lower the minimum, because more of the car has been paid off along the way.
The residual cannot typically be changed at the end of the lease. It is set when the lease is written and stays fixed for the term, which is why a lower residual has to be chosen at the start of the next lease, not negotiated at the end of this one. The way a residual balloon is set on business finance works differently, because it is a commercial choice rather than a tax rule.
The residual on a novated lease often sits close to, and sometimes above, what a dealer will offer on trade-in, particularly on cars that have done high kilometres. That gap is the reason paying the residual in cash is not automatically the smart move, and it is the first number to check.
Should you pay the residual in cash?
Paying the residual in cash suits you when you have the funds, you plan to keep the car for years, and the car is worth at least the residual. You own the car outright, there is no new contract and nothing to be assessed.
The cost is liquidity. The residual is typically a large lump sum, and for a business owner that cash is often worth more inside the business than inside a depreciating car. If you pay it personally, the car becomes a private asset, so any claim you could make for business use is a question for your accountant, not a given.
Check the car's market value before you pay. If it is worth less than the residual, paying cash locks in that gap; if it is worth more, the surplus equity is yours whichever path you choose. A residual works like any balloon payment in this respect, and if the date is close and you are not ready, our guide on what to do when a balloon falls due before you are ready to refinance covers the timing problem.
Can a company director refinance the residual into a chattel mortgage or business loan?
A company director can typically refinance the residual into the business by having the company buy the car at the end of the lease with a chattel mortgage, instead of paying the residual personally. The company becomes the owner, the lender takes security over the car, and the repayments come out of the business rather than your pay.
This is the option most directors are never told about, because the salary packaging provider's job ends when the lease does. It keeps cash in the company, and if the company is registered for GST and uses the car in the business, it may be able to claim GST credits, interest and depreciation under the business rules. How much of that applies depends on the company's position and the car's use, which is your accountant's call.
What do lenders look at when the company buys the car?
What lenders actually look at first is the company: how long it has held an ABN, whether it is registered for GST, and whether its trading supports the new repayment. Then the car: its age at the end of the new term, its kilometres, and whether the price lines up with its market value. A company with a shorter trading history may still have options through an ABN car loan (varies by lender).
Depending on the financier, the company either buys the car directly at the residual, or you buy it and then sell it to the company. Your accountant should settle which before settlement, because a sale between you and your own company has tax consequences of its own. Our post on which entity signs a chattel mortgage covers the ownership side.
The usual result: you keep driving the same car, the residual is cleared on the day, and the business carries a shorter chattel mortgage in place of a personal lump sum. You can model the repayment on our chattel mortgage calculator, and the wider set of options for company owners sits on the Business Owners Hub. If the car will be mostly private, a personal car loan in your own name is the cleaner fit, because it keeps the car out of the company and out of FBT.
Should you re-lease, sell or trade in the car?
Re-leasing suits you if you want to stay on a salary package, and selling or trading in suits you if the car is worth more than the residual. Both are worth pricing before you commit to paying or refinancing.
Re-lease a new car. You trade in the old car, the proceeds clear the residual, and a new novated lease starts with a fresh term and a fresh residual. Your company has to agree to keep packaging the lease, which for a director usually means agreeing with yourself and your accountant.
Re-lease the same car. Some financiers will refinance the residual into a new novated lease on the car you already drive, subject to its age and value (varies by financier). It keeps the package running, but it also restarts the residual cycle on an older car.
Sell privately or trade in. A private sale often achieves more than a trade-in, but takes longer. The financier owns the car until the residual is paid, so the sale is usually settled through the financier, with any surplus paid to you. Our post on residual and balloon strategy covers how to weigh the residual against resale value.
Whichever way you lean, start the conversation about three months before the lease ends, typically. That gives you time to get a trade-in figure, a private sale estimate and a finance approval before the residual falls due.
Ninety days before the lease ends
- Ask the financier for the exact residual and payout date
- Get a trade-in figure and a private sale estimate
- Ask your accountant who should own the car next
- Line up finance approval before the residual is due
What leaves you short at the end
- Finding out the residual figure in the final week
- Assuming the car is worth more than the residual
- Letting the company buy the car without advice
- Applying for finance after the due date has passed
What changes for tax, GST and FBT when you keep the car?
When you keep the car personally after the residual is paid, it stops being a benefit your company provides, so FBT on that car generally ends and the running costs become yours. The pre-tax deductions from your pay stop at the same time.
If the company buys the car instead, it is a company car again. Where it is available for your private use, FBT generally applies, and the company claims GST credits and deductions under the business rules. Our post on FBT on a company car explains how that is worked out, and electric cars can be treated differently, covered in our post on electric car finance for an ABN business.
Ask the financier whether the residual figure is quoted with or without GST, because whether anyone can claim that GST depends on who buys the car and whether they are registered. This does not change the approval, but it does change the true cost of each option, so get the figures from your accountant before you choose.
What happens if you leave the company, it closes or the employer changes?
If you leave the company, or it closes, the novation typically ends and the lease reverts to you personally, so you keep making the payments from your after-tax income until the term ends or you pay it out. The salary packaging side means the lease follows the employer, but the debt stays with you.
For a director, leaving the employer usually means restructuring, selling or winding up the company. If you set up a new company, it can usually take over the novation if it agrees (varies by financier). If you sell the business, the buyer's company is under no obligation to take on your lease, and our post on selling a business with finance in place covers how vehicles are usually handled in a sale.
Ending the lease early is the other route. The financier quotes a payout figure that typically covers the remaining payments and the residual, less any rebate of future charges, plus fees (varies by financier). If you go on to trade as a sole trader, a novated lease is no longer available, so the car moves to business finance in your own name or a personal loan.
The end of a novated lease gives a director more choices than the end of lease letter suggests. You can pay the residual, borrow it personally, have the company buy the car with a chattel mortgage, re-lease, or sell. The right answer depends on the car's value against the residual, whether the car is mostly business or private, and where cash is worth more to you. The company option keeps cash in the business but brings FBT back; owning it personally ends FBT but uses your own money or credit.
Key takeaway: get the residual, the car's market value and your accountant's view on ownership about three months out, then pick the path before the due date picks it for you.Frequently Asked Questions
At the end of a novated lease you can pay the residual and keep the car, refinance the residual with a new loan, re-lease a new or the same car, or sell or trade in the car to clear what is owed. A company director can also have the company buy the car with business finance. The right choice depends on the car's value against the residual value and how the car will be used next.
The balloon payment at the end of a novated lease has to be dealt with, but you do not have to pay it in cash. You can refinance it, roll it into a new lease, or sell the car and use the proceeds. It works like any other balloon payment: the amount is fixed, the funding is your choice.
You can usually end a novated lease before its term and move to other finance, but you pay out the lease to do it. The payout typically covers the remaining payments and the residual, less any rebate, plus fees (varies by financier). A director's company can then buy the car with a chattel mortgage, or you can borrow personally.
If you terminate a novated lease early, the financier asks for a payout figure covering what is left on the lease, and the salary packaging arrangement ends. You can pay it, refinance it or sell the car to clear it. Any early termination fee and the tax effect of ending the package are worth checking with the financier and your accountant first.
Your company can usually buy the car at the end of your novated lease, either directly at the residual or from you after you buy it, depending on the financier. The company can fund the purchase with a chattel mortgage or an ABN car loan, assessed on its trading. The car then becomes a company car, so FBT generally applies again if you use it privately.
FBAA Accredited
