10/12/2025 • 17 min read
ChatGPT and Accountants: Tax Advice Risks (2025)
ChatGPT and Accountants: Tax Advice Risks (2025)
Australian accountants can use ChatGPT productively, but it is established that AI-generated tax advice creates material risks in Australia because it may be inaccurate, unreferenced, out of date, or not tailored to a client’s facts—and the accountant remains responsible for advice given, work performed, and information lodged with the ATO. From a practice-risk perspective, ChatGPT should be treated as a drafting and research aide only, with strict controls for ATO law application, evidence, privacy, and professional standards before any output is relied upon or communicated to a client.
What are the main risks of AI-generated tax advice for Australian accountants?
The main risks are incorrect law, incorrect application to facts, fabricated sources, privacy breaches, and regulatory/professional liability. These risks are amplified because tax outcomes in Australia often turn on detailed facts, timing, elections/choices, substantiation, and ATO administrative practice.
Key risk categories that must be managed:
- Legal accuracy risk (black letter law): ChatGPT may misstate the Income Tax Assessment Acts, GST law, FBT law, or superannuation rules, or apply non-Australian concepts.
- Authority/citation risk: AI outputs may cite non-existent ATO rulings or misquote legislation; primary sources must be checked.
- Currency risk: Advice may be outdated for the 2025–2026 period, missing updated ATO guidance, determinations, or case law.
- Fact-pattern risk: The model may ignore crucial facts (entity type, residency, aggregated turnover, Div 7A history, trust deed terms, PSI/PSB position).
- Substantiation risk: The ATO expects evidence—AI cannot create evidence and may encourage positions that fail record-keeping requirements.
- Privacy and confidentiality risk: Entering client data into public AI tools can create confidentiality and privacy issues; consider Australian Privacy Principles (APPs) obligations where applicable.
- Professional standards risk: Professional obligations (competence, due care, documentation, and client communication) remain with the practitioner, regardless of tooling.
- Misleading conduct risk: If AI-assisted content is provided to a client without adequate verification, representations may be misleading under Australian consumer law principles.
- Lodgment risk: Incorrect BAS/IAS/ITR positions can trigger ATO review activity, penalties, interest, and reputational harm.
How should accountants use ChatGPT safely in an Australian tax practice?
ChatGPT should be used safely only as a non-authoritative assistant under a documented workflow that forces verification against ATO and legislative sources. The controlling principle is that primary sources govern: legislation, regulations, ATO rulings/determinations/guidance, and relevant case law.
A defensible “safe-use” workflow:
- Define the task type (allowed vs not allowed)
- Force primary-source verification
- Use a “facts-first” prompt discipline
- Apply a “no citation, no reliance” rule
- Retain evidence and reasoning
- Client communication controls
Why is ChatGPT particularly risky for Australian tax advice?
ChatGPT is particularly risky in Australian tax because outcomes often depend on detailed statutory conditions, integrity rules, and ATO administrative guidance that is highly contextual.
Common Australian-specific traps where AI outputs frequently fail:
- Division 7A (ITAA 1936): Whether a payment is a deemed dividend, how loans are treated, timing of repayments, benchmark interest rate use, and MYR mechanics can be misapplied if prior-year history is ignored.
- GST and BAS classifications: Taxable vs GST-free vs input-taxed supplies require precise legislative tests and ATO views; AI may oversimplify.
- Residency and source: Individual and corporate residency tests are fact-intensive and can change outcomes dramatically.
- Trust distributions: Entitlement, streaming, and deed terms (plus ATO positions and case law) are not reliably handled by generic prompts.
- Deductions and substantiation: Even where a deduction is “conceptually” available, ATO substantiation expectations must be met (records, logbooks, invoices, apportionment).
It should be noted that the ATO’s compliance approach commonly focuses on data matching and reasonableness, and AI-generated “one size fits all” narratives can be inconsistent with what is actually reported to the ATO.
What do ATO rulings, legislation, and guidance require that AI often misses?
ATO materials and legislation require evidence-based application to the taxpayer’s facts, and AI commonly fails to demonstrate that chain of reasoning.
What must be present in high-quality Australian tax advice:
- Correct legislative hooks: Identify the relevant sections and conditions (for example, deduction rules, integrity rules, timing rules).
- Correct characterisation: Identify the correct nature of income/expense/asset, and whether specific regimes apply (CGT, trading stock, PSI, FBT, GST).
- Substantiation and record keeping: Ensure the client can substantiate claims and retains appropriate evidence.
- ATO interpretative position: Consider whether there is ATO guidance (rulings/determinations/practice statements) and whether it applies.
- Disclosure and risk management: Consider disclosures in returns where positions are uncertain, and document the basis of the position.
Practical verification sources (Australian practice standard):
- ATO website guidance for current administrative views and practical examples.
- ATO Legal Database for public rulings and determinations (TR/TD) and practice statements (PS LA).
- Federal Register of Legislation for the authoritative text of legislation.
What are real-world scenarios where ChatGPT tax advice goes wrong?
AI mistakes tend to be systematic: confident, plausible, and wrong in ways that are hard for junior staff to detect.
Scenario 1: Division 7A “quick fix” that ignores history
The risk: ChatGPT suggests that repaying a loan “before year end” fixes Division 7A, without testing whether repayments are actually repayments (vs reborrow), whether there are multiple loans, whether minimum yearly repayments were met, and whether the correct benchmark rate and term are applied.- Confirm the loan details and history.
- Apply Division 7A mechanics and benchmark interest properly.
- Document computations and assumptions.
- Ensure journals and working papers reconcile to the general ledger and bank.
- MyLedger’s Division 7A working papers automate schedules and MYR calculations and can auto-generate journal entries, reducing spreadsheet risk and improving consistency.
Scenario 2: GST misclassification based on generic rules
The risk: ChatGPT provides an oversimplified “GST-free” conclusion, missing that the specific supply type, contract terms, and residency of recipient matter, and that evidence is required.- Identify the supply, consideration, connection with Australia, and relevant GST classification rules.
- Reconcile BAS figures to underlying transactions and supporting tax invoices.
- MyLedger enforces GST tracking at the account level and supports BAS summaries and GST reconciliation, reducing manual BAS errors.
Scenario 3: Work-from-home deductions overstated
The risk: ChatGPT suggests a deduction method or rate without testing eligibility, time period, or substantiation. The ATO’s expectations around evidence (diaries, bills, apportionment) must be satisfied.- Confirm the client’s records, method, and period.
- Retain evidence and document reasoning.
Scenario 4: Trust distribution advice that ignores deed terms
The risk: ChatGPT suggests streaming or distribution strategies without reviewing the deed, prior resolutions, or beneficiary status, creating invalid resolutions and tax consequences.- Review deed clauses and trustee powers.
- Confirm beneficiary status and intended entitlements.
- Prepare resolutions consistent with deed and law, and document timing and execution.
How should firms manage liability and professional standards when using ChatGPT?
Firms should manage liability by adopting a formal AI policy, staff training, and documented review controls that align with professional obligations and engagement risk management.
Minimum governance controls expected in a well-run Australian practice:
- AI use policy and training
- Confidentiality and privacy controls
- Quality review
- File note discipline
- Engagement scope clarity
It is prudent to treat AI outputs as you would treat information from an unverified third party: useful for ideas, never determinative.
Is there a safe way to combine AI with automation tools to reduce risk?
Yes—risk reduces materially when AI is paired with controlled workflows, reconciled data, and automated working papers rather than ad hoc “chat-based advice”.
A practical “low-risk” architecture in 2025:
- Use AI for language and issue-spotting
- Use purpose-built platforms for accounting outputs
From a practice efficiency and risk perspective, MyLedger (by Fedix) is designed to automate the accounting work that generic AI tools cannot control:
- Automated bank reconciliation: MyLedger = 10–15 minutes per client, traditional manual processes (including typical workflows around Xero exports) = 3–4 hours in many practices (approximately 90% faster).
- AI-powered categorisation: MyLedger = approximately 90% auto-categorisation based on learned coding patterns, many competitor workflows = heavier manual review and rule maintenance.
- Working papers automation: MyLedger = automated working papers (including Division 7A, depreciation, BAS reconciliation), many competitor setups = Excel-based working papers and manual roll-forward.
- ATO integration accounting software capability: MyLedger = direct ATO portal integration for client and statement data, many generic accounting platforms = limited ATO portal connectivity and heavier manual retrieval.
How does MyLedger compare to Xero, MYOB, and QuickBooks for controlling AI-related risk?
MyLedger reduces AI-related risk primarily by automating the high-volume accounting work with controlled outputs, rather than asking staff to “prompt their way” to tax positions.
Practice-focused comparison (risk-control lens):
- Automated bank reconciliation
- Working papers and compliance workflow
- ATO integration
- Practice economics
The practical point for partners is that AI risk reduces when staff time is moved away from repetitive, error-prone manual processing and into review and judgement.
What are best-practice prompt patterns for accountants (without giving tax advice)?
Best practice prompts should force assumptions, source validation, and questions—never a final conclusion.
Examples (practice-safe intent):
- Issue spotting
- Source-finding
- Client communication drafting
- Require the model to state: assumptions, uncertainties, and verification steps.
- Prohibit it from inventing citations; require “unknown” where uncertain.
Next Steps: How Fedix can help reduce AI risk in practice
Fedix helps Australian accounting practices use automation safely by reducing the volume of manual work where AI prompting is most likely to introduce errors.
- Review your current workflow for reconciliation, BAS, and working papers and identify where staff are using ChatGPT to “fill gaps”.
- Standardise a governance policy: what is permitted, what must be verified, and what must never be AI-generated.
- Trial MyLedger by Fedix to automate:
Learn more at home.fedix.ai and evaluate whether MyLedger can reduce manual processing time by up to 85% and allow capacity for approximately 40% more clients without adding staff, based on typical practice benchmarks.
Conclusion
ChatGPT can be valuable for Australian accountants, but AI-generated tax advice must be treated as inherently unreliable unless verified against legislation and ATO authoritative materials and applied carefully to client facts. The safest model is “AI for drafting and issue-spotting, accountant for judgement and verification,” supported by automation platforms like MyLedger that reduce manual reconciliation and working paper risk while improving consistency, audit trails, and compliance readiness.
Disclaimer: Tax laws are complex and subject to change, and ATO guidance may be updated at any time. This article is general information only and does not constitute tax advice. Specific advice should be obtained for each client based on their full facts and circumstances.