In this article, we’ll cover how to calculate a novated lease’s residual value, how to pay the residual value and the tax advantages of a novated lease. Read on to find out more! The ATO determines the residual value of a novated lease and is based on a vehicle’s useful life of eight years.
Calculating a novated lease’s residual value
When calculating a novated lease residual value, you’ll want to consider a few different factors. First, you need to determine whether you’ll pay the residual value at the end of the lease. While you’re liable for the residual value at the end of the lease, you can reduce the amount of the residual value by refinancing your lease or trading it in. If you don’t want to pay the residual value, consider selling the car instead of returning it.
The residual payment amount depends on the lease’s length and the car’s value at the end of the lease term. Also, remember that residual payments must be paid with post-tax dollars and cannot be paid from funds inside the novated lease account.
The good news is that residual payments are relatively small and are nothing to be afraid of. Using a tool such as Maxxia to calculate residual values, you can ensure that you’ll always be prepared for the amount you’ll need to pay at the end of the lease.
Options for paying the residual value
Depending on your situation, you can pay off the residual value of your novated lease in several ways. You can sell the vehicle or refinance the residual value to reduce the amount. In addition, you can pay off the residual value of the novated lease and own the vehicle outright. However, there are certain limitations associated with the latter option.
The novated lease residual value is the vehicle’s total value at the lease’s end. This amount is equal to the market value of the vehicle after depreciation. Therefore, you can pay off the residual value of the novated lease by paying the lease provider the difference between the amount owed and the actual market value.
The residual value of a novated lease can be compared with the residual value of another car of the same type. This way, you can be sure that the two vehicles have the same value and other aspects. A higher residual value will result in lower monthly payments, while a lower value will result in higher payments.
Tax benefits of a novated lease
The tax benefits of a novated lease can be very beneficial to you if you own a vehicle. You finance two-thirds of the car price during the lease period and must pay the remainder at the end. It allows you to make lower monthly payments than other car finance forms. Moreover, you can terminate your lease early if you no longer need the car and sell it privately. This way, you’ll get tax-free money from any appreciation in the car’s residual value.
Another advantage of a novated lease is that you can customise your repayments according to your current and future needs. For instance, if you’d like to lease a car for three years with a residual value of 60%, the monthly payments would be $2,040. But if you plan to buy something other than the car, you can try to negotiate for a higher residual.
Another benefit of a novated lease is that it reduces your payroll tax. The cost of the arrangement depends on your state and the size of your workforce. The benefits of this arrangement are substantial, and the savings can even help your company improve the productivity of your employees.
Another benefit is that you can claim GST on the vehicle’s running costs. The employee salary packaging novated lease with an ECM will pay more GST than if they had purchased it directly. However, the employer will claim the GST you pay on the residual value as an input tax credit. However, this benefit is outweighed by the added cost of paying FBT.