For Australian accounting practitioners, the 2026 SAR changes introduce specific reporting rigor. They clarify 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.
The physical form structure remains consistent with the previous year. However, the ATO has tightened auditor fee reporting and the classification of modified audit opinions. This regulatory shift addresses inconsistent data entry. Previously, some firms under-reported audit costs or obscured qualified outcomes. The solution lies in strict adherence to the updated H1 and H2 instructions. You also need a broader interpretation of Label 6. The core strategy for the 2026 lodgement cycle is simple. Ensure every SAR mirrors the Independent Auditor’s Report. Detail audit pricing explicitly, even when fees are non-deductible or nil.
2026 SAR Changes: Mandatory H1 and H2 Auditor Fee Labels
The most significant 2026 SAR change concerns SMSF auditor fee reporting. Although labels H1 and H2 existed in the 2025 form, many practitioners treated them as optional or secondary. The ATO now mandates these fields to capture the total audit cost. It splits the cost 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 wants detailed visibility into audit pricing across the sector. By making these fields mandatory, the regulator can spot “low-ball” audit fees. These often point to 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.
2026 SAR Changes: Clarifying Label 6’s Definition of “Qualified”
The second critical update covers 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 covered other types of audit modifications.
The ATO’s 2026 instructions provide a definitive answer: you must select “qualified” if the auditor issues any form of modified opinion. The ATO also confirmed this in the SMSF Auditors Professional Association Stakeholder Group key messages from December 2025. It states that the 2025-26 SAR instructions now include adverse opinions and disclaimers as qualified audit opinions.
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 flags any deviation from a clean audit report 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 2026 SAR 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. A modified opinion at Label 6 combined with a low fee at H1/H2 is a strong trigger. It often draws an ATO review.
From a practitioner’s perspective, the 2026 requirements demand a tighter workflow. The tax agent must wait for the final IAR to populate the SAR. If the auditor qualifies the report due to asset valuation issues, the SAR must reflect this at Label 6. The audit fee goes in H1 or H2.
Asset Valuations and the Reporting Link
A frequent cause of modified audit opinions — and a “Yes” at Label 6 — is poor asset valuation evidence. The ATO continues to signal that valuations need 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 method and supporting evidence.
When preparing for the 2026 SAR, cross-reference your valuation evidence against the ATO’s guide to valuing SMSF assets. If the auditor determines the valuation evidence is insufficient, they must modify their opinion. Under the new guidance, you must disclose this modification at Label 6. You can no longer “soften” audit exceptions.
Implementing the 2026 Workflow
To ensure compliance with the 2026 SAR 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. They do require better data integrity during SAR preparation. By using H1/H2 correctly and applying the expanded Label 6 definition, firms can reduce ATO queries. This helps maintain a clean compliance record for SMSF clients.
