---
title: Residual Value
description: What is the residual, why does it exist, what happens once I payout the residual at the end of my lease?
---
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# Residual Value
## What is the residual, why does it exist, what happens once I payout the residual at the end of my lease?
The residual is a balloon payment that is due at the end of the lease. The residual is a percentage of the initial purchase price of the car. It is dictated by the term of the lease. Each term’s as a residual percentage assigned to it.
The ATO has outlined what the minimum residual values should be. The only time the residual can be reduced below the minimum is when the driver travels a high number of kilometers, as their car will depreciate at a faster rate.
---
Below are the ATO approved residual value rates.
| **Term of lease** | **Effective Life** |
| --- | --- |
| Year 1 | 65.63% |
| Year 2 | 56.25% |
| Year 3 | 46.88% |
| Year 4 | 37.5% |
| Year 5 | 28.13% |
---
**Why does a residual exist?**
It’s the ATO’s way of saying you can’t salary package the entire value of your car in 1 year then sell the car at a profit because you avoided paying tax on it. The ATO is allowing you to salary package the depreciation during the time that you own it. In a 3 year lease the residual is 46.88% because the ATO is assuming your car will depreciate by 53.12% over the 3 years.
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The information contained within is general in nature. For specific lease information please submit a support ticket. 1300 266 828
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