Novated lease
What happens at the end of a novated lease?
Short answer: when a novated lease ends, you still owe a lump sum called the balloon (or residual). You have three options: pay it and keep the car (with cash or a car loan), refinance or re-lease (the same car or a new one), or sell or trade the car in and use the money to clear the balloon. On a 5-year lease the balloon is at least 28.13% of the car's price, so on a BYD Seal Premium or a Tesla Model Y RWD it's roughly A$15,000 to A$16,500.
General information, not tax or financial advice. We don't recommend any lease provider.
General information, not tax advice. Rules change and your circumstances differ. Check the ATO sources linked here and speak to a registered tax agent or your employer's payroll team before you decide.
What the balloon is and how it's set
The finance company owns the car during the lease. Your payments don't cover its full cost: a residual is left unpaid, and that's what you settle at the end. The ATO sets a minimum residual for each lease term, worked out on the car's cost to the finance company (ATO TD 93/142):
| Lease term | Minimum residual (% of cost) |
|---|---|
| 1 year | 65.63% |
| 2 years | 56.25% |
| 3 years | 46.88% |
| 4 years | 37.50% |
| 5 years | 28.13% |
Providers can set a higher residual, but not a lower one. A higher residual means lower monthly payments and a bigger lump sum at the end.
Worked balloon figures: BYD Seal and Tesla Model Y
We've used the prices from our BYD Seal and Tesla Model Y pages.
Assumptions: residual worked out on the list price before on-road costs (A$52,990 for the Seal Premium, A$58,900 for the Model Y Premium RWD), which is the usual practice because stamp duty and rego aren't part of the car's cost. Many providers finance the GST-exclusive price, because they can claim the GST back, so we show that too. Your contract states the exact figure.
| Car | Price used | 3-year balloon | 5-year balloon | 5-year balloon, GST-exclusive price |
|---|---|---|---|---|
| BYD Seal Premium | A$52,990 | A$24,842 | A$14,906 | A$13,551 |
| Tesla Model Y Premium RWD | A$58,900 | A$27,612 | A$16,569 | A$15,062 |
Our Seal page works the residual on the full A$57,411.75 drive-away price, as our calculator does, so it shows a slightly higher A$16,150 (5 years). Treat that as the cautious figure.
The residual isn't a guaranteed value. It's a tax rule for setting the lump sum, not a forecast of what the car will be worth. If used EV prices fall, the car may be worth less than the balloon at the end of the lease. That doesn't change what you owe, but it changes which option makes sense. For example, if you owe A$16,569 on a Model Y but it only sells for A$14,000, you'd have to find the A$2,569 shortfall yourself.
Option 1: pay the balloon and keep the car
You pay the residual to the finance company and the car becomes yours. You can pay in cash, or take out an ordinary car loan to cover it (often called "refinancing the balloon").
- GST: the finance company is selling you the car, so GST is normally added to the residual if the lease was on the GST-exclusive price. Check that your payout figure is GST-inclusive.
- FBT: once you own the car, the novated lease ends and so does the fringe benefit. Rego, insurance, charging and servicing are no longer paid from your pre-tax salary, and you pay them out of your take-home pay like any other car owner.
- Best when: the car is worth more than the balloon and you want to keep it for years.
Option 2: refinance or re-lease
You can start a new novated lease, either on the same car (re-leasing the residual) or on a new car.
- Same car: the new lease starts from the residual value, so payments are lower, but you pay interest for longer and there's another, smaller balloon at the end.
- New car: you trade in or sell the old car to clear the balloon and lease a new one, keeping your running costs packaged before tax.
- FBT: a new lease is a new arrangement. An EV is FBT-exempt only if its first retail price was below the luxury car tax threshold for fuel-efficient vehicles (A$91,661 for 2026–27) and it was first held and used on or after 1 July 2022 (ATO, Electric cars exemption; ATO, LCT thresholds). Leases started after the proposed April 2027 changes may face a lower cap (not yet law; see what happens after March 2027).
- Plug-in hybrids: PHEVs lost the exemption from 1 April 2025. Existing leases committed before then keep it, but re-leasing a PHEV is a new commitment and won't be exempt (ATO, Electric cars exemption). See EV vs PHEV on a novated lease.
- Best when: you want lower monthly payments, or you're upgrading and want to keep the tax savings.
Option 3: hand it back, sell or trade in
With a novated lease, you can't simply hand the keys back and walk away. You're responsible for the balloon, so "handing back" really means selling the car or trading it in and using the money to pay it out.
- Surplus: if the car sells for more than the balloon, the extra is yours to keep.
- Shortfall: if it sells for less, you pay the difference.
- Some providers will sell the car for you, and dealers will quote a trade-in. Get more than one price, because trade-in offers are often below private sale.
- Best when: you no longer need the car, or you want to switch to a different one without a new lease.
Which option suits you
| Your situation | Likely best option |
|---|---|
| Car worth more than the balloon, want to keep it | Pay the balloon (cash or loan) |
| Want to keep it but can't pay the lump sum | Re-lease the residual or take out a car loan |
| Want a newer EV and to keep the tax savings | Sell or trade in, then start a new lease |
| Car worth less than the balloon | Compare a shortfall now with re-leasing; get several valuations |
| Don't need a car any more | Sell and clear the balloon |
Start planning about six months before the end date. Ask your provider for the exact payout figure (including GST) and check what the car is worth on the used market.
Bottom line
The balloon is the part of a novated lease people forget about. On a 5-year EV lease expect roughly a quarter of the car's price, about A$15,000 to A$16,500 on a Seal or Model Y. The residual isn't what the car will be worth, so check its real value before you decide whether to keep it, re-lease or sell. Run your numbers in our novated lease calculator.
FAQ
Do you own the car at the end of a novated lease?
Not automatically. You own it only once you've paid the balloon.
Can I just give the car back?
Not without settling the balloon. You'd sell or trade in the car and pay any shortfall.
Does the FBT exemption carry on after I pay out the lease?
No. Once you own the car the novated lease ends, so there's no fringe benefit and no exemption, and you stop paying running costs from your pre-tax salary.
Is GST charged on the balloon?
Usually yes, when the lease was financed on the GST-exclusive price. Check your payout figure.
Disclaimer: this is general information only, not financial or tax advice. It doesn't take your circumstances into account. Lease terms, residuals and tax rules vary, so check your contract and talk to your provider or a registered tax agent before you decide. Some links on this site may be affiliate links; see our About page for details.
Sources
- ATO, TD 93/142 minimum residual values: https://www.ato.gov.au/law/view/document?DocID=TXD%2FTD93142%2FNAT%2FATO%2F00001
- ATO, Electric cars exemption: https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption
- ATO, Luxury car tax rate and thresholds: https://www.ato.gov.au/tax-rates-and-codes/luxury-car-tax-rate-and-thresholds
- BYD Australia, Seal configurator: https://bydautomotive.com.au/configurator/byd-seal
- Drive, Tesla Model Y pricing: https://www.drive.com.au/showrooms/tesla/model-y/
Last checked: 21 October 2026. General information only, not tax, financial, legal or credit advice. We don’t recommend any provider; where businesses are named, it’s for information. See our affiliate disclosure.