Just Arrived: What Actually Changed in the 2026 SAR?

For Australian accounting practitioners, the release of the 2026 SMSF Annual Return (SAR) instructions — you can access the 2026 SMSF Annual Return (NAT 71226) here — has introduced specific reporting rigour that clarifies long-standing ambiguities. Mandatory reporting now applies to labels H1 and H2 for auditor fees, and you must use “0” if either field is nil. Label 6 has also been expanded, so “Qualified” now includes Adverse Opinions and Disclaimers. SAR data must strictly match the Independent Auditor’s Report. Correct reporting reduces the likelihood of ATO compliance reviews.

While the physical form structure remains consistent with the previous year, the Australian Taxation Office (ATO) has tightened the requirements for auditor fee reporting and the classification of modified audit opinions. This regulatory shift addresses the problem of inconsistent data entry that previously allowed some firms to under-report audit costs or obscure qualified outcomes. The solution for practitioners lies in a strict adherence to the updated instructions for H1 and H2 labels and a broader interpretation of Label 6. The core strategy for the 2026 lodgement cycle is to ensure every SAR correctly mirrors the Independent Auditor’s Report (IAR) and explicitly details audit pricing, even when fees are non-deductible or nil.

Mandatory Reporting for H1 and H2 Auditor Fee Labels

The most significant change in the 2026 SAR instructions concerns the reporting of SMSF auditor fees. Although labels H1 and H2 existed in the 2025 form, their completion was often treated as optional or secondary. The ATO has now mandated the exclusive use of these fields to capture the total audit cost, split between deductible and non-deductible components. The 2026 SAR form itself now includes a note beside the H1 and H2 labels: ‘#This is a mandatory label.’

Practitioners can no longer leave these labels blank or bundle audit fees into general “accounting expenses” without specific disclosure. The ATO’s objective is to gain granular visibility into audit pricing across the sector. By making these fields mandatory, the regulator can more easily identify “low-ball” audit fees that may correlate with inadequate audit depth or quality.

Precise Data Entry Requirements

Under the 2026 guidance, every SAR must account for the auditor’s fee using the following logic:

Label H1 (Deductible SMSF auditor fee): Record the portion of the fee that is deductible to the fund. This typically covers the financial and compliance audit work related to taxable income.
Label H2 (Non-deductible SMSF auditor fee): Record the portion of the fee that relates to tax-exempt income, such as assets supporting a pension in the retirement phase.
Nil Reporting: If one category is nil, you must report “0” rather than leaving it blank. If the total audit fee is $600 and the fund is 100% in pension phase, H1 would be $0 and H2 would be $600.

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Clarifying the Definition of “Qualified” at Label 6

The second critical update pertains to Section A, Item 6, which asks whether the audit report was qualified. In previous years, there was practitioner ambiguity regarding whether “qualified” only referred to a “Qualified Opinion” or if it encompassed other types of audit modifications.

The ATO’s 2026 instructions provide a definitive answer: for SAR reporting purposes, a “qualified” response is required if the auditor issues any form of modified opinion. The ATO also confirmed this position in the SMSF Auditors Professional Association Stakeholder Group key messages dated 10 December 2025, stating that the 2025-26 SAR instructions were amended to clarify that a qualified audit opinion for Part A and Part B includes adverse opinions and disclaimers of opinion.

This includes:

Qualified Opinions: Where the auditor finds specific issues but the financial statements are otherwise fair.
Adverse Opinions: Where the auditor determines the financial reports are materially misstated.
Disclaimer of Opinion: Where the auditor cannot obtain sufficient evidence to form an opinion.

By broadening the trigger for a “Yes” at Label 6, the ATO ensures that any deviation from a clean audit report is flagged for regulatory review. This prevents funds from appearing compliant on the SAR when their actual audit report contains significant warnings or limitations.

Why Auditor Transparency Matters in 2026

These changes reflect a broader ATO focus on audit quality and independence. When a firm uses a professional SMSF audit service, the resulting data in the SAR serves as a primary risk filter for the regulator. The combination of a modified opinion at Label 6 and an unusually low fee at H1/H2 is a high-probability trigger for an ATO review.

From a practitioner’s perspective, the 2026 requirements demand a tighter workflow between the tax agent and the auditor. The tax agent must wait for the final IAR to accurately populate the SAR. If the auditor qualifies the report due to asset valuation issues, the SAR must reflect this modification at Label 6, and the corresponding audit fee must be recorded at H1 or H2.

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Asset Valuations and the Reporting Link

A frequent cause of modified audit opinions, and thus a “Yes” at Label 6, is the failure to provide sufficient appropriate evidence for asset valuations. The ATO continues to signal that valuations must be based on objective and supportable data. For a practical deep-dive on getting property valuations audit-ready — including documentation checklists and common pitfalls — check out our guide: 7 Best Hidden Secrets for a Smooth SMSF Property Audit. The definitive ATO source on this point is Valuing assets for SMSF purposes, which sets out the regulator’s expectations on market value methodology and supporting evidence.

When preparing for the 2026 SAR, practitioners should cross-reference their valuation evidence against the ATO’s guide to valuing SMSF assets. If the auditor determines the valuation evidence is insufficient, they are obligated to modify their opinion. Under the new guidance, this modification must be explicitly disclosed at Label 6, removing the ability to “soften” the reporting of audit exceptions.

Implementing the 2026 Workflow

To ensure compliance with these two specific guidance changes, firms should update their internal SMSF finalisation checklists.

Review Fee Invoices: Ensure auditor invoices clearly distinguish between the audit fee and other non-audit services. Only the audit fee components belong in H1 and H2.
Audit Opinion Mapping: Create a direct mapping rule where any result other than an “Unmodified Opinion” in the IAR automatically triggers a “Yes” at Label 6 of the SAR.
Documentation: Maintain clear working papers showing the calculation of the deductible vs. non-deductible split for H1/H2, especially for funds with mixed-phase memberships.

These updates do not require new audit procedures, but they do require a higher level of data integrity during the SAR preparation phase. By adhering to the mandatory use of H1/H2 and the expanded definition of a qualified report at Label 6, firms can minimize the risk of ATO queries and maintain a clean compliance record for their SMSF clients.

Frequently Asked Questions

Do I still need to use H1 and H2 if the audit fee was zero?

Yes. If the auditor did not charge a fee (e.g., for a related-party fund, though this raises independence issues), you must enter "0" in both H1 and H2. The 2026 SMSF Annual Return (NAT 71226) marks these labels as mandatory, meaning they cannot be left blank.

What happens if I report a "No" at Label 6 but the auditor issued a Disclaimer of Opinion?

This would be considered an incorrect lodgement. The 2026 instructions clarify that "Qualified" for the purpose of the SAR includes Disclaimers and Adverse opinions. Providing a "No" (indicating an unmodified audit) when a modification exists could lead to penalties for making a false or misleading statement.

Can I bundle the auditor fee into the general 'Accounting and Administration Fees' label instead?

No. While audit fees are part of the fund's expenses, the ATO now requires them to be reported specifically and exclusively at H1 and H2. This allows the regulator to benchmark audit costs across the industry.

Does a modified opinion at Label 6 automatically trigger an ATO audit of the fund?

Not necessarily, but it increases the risk profile of the fund. The ATO uses Label 6 as a primary filter to identify funds with compliance or financial reporting issues. A "Yes" at Label 6 combined with certain other factors: like very low audit fees: will likely result in closer scrutiny.

How do I split the fee if the audit covered two financial years in one go?

You should report the portion of the fee that relates to the audit of the specific financial year the SAR covers. If the invoice doesn't specify, use a reasonable basis for apportionment and document your methodology in the fund's work papers.