AI Can Help With Your Tax Return. But Not Like That.

Tax experts are warning Australians not to trust AI chatbots to handle their tax returns. The ATO has made it one of its priority focus areas for 2026, and if you’re a sole trader or small business owner, this warning is aimed squarely at you.

ATO Assistant Commissioner Anita Challen put it plainly earlier this year: “AI can be helpful, but it often draws from a broad and inconsistent range of sources, which can lead to inaccurate advice. For example, it could be drawing content about tax obligations or laws from outside of Australia or outdated sources. Your tax return isn’t the place for guesswork.”

CPA Australia tax lead Jenny Wong backed that up, telling 7NEWS.com.au: “Bad advice doesn’t just risk missing out on genuine entitlements, it can also land people with penalties, audits or worse.”

The warning is timely. With EOFY on 30 June, plenty of small business owners are googling deductions, asking ChatGPT what they can claim, and hoping for the best. The ATO is watching for exactly that.

But here’s where the advice usually stops, and where it should keep going.

AI IS useful for tax prep. Just not like that.

The ATO isn’t saying AI has no place in your finances. Neither are we. The problem isn’t AI itself. It’s using AI as a substitute for a registered tax agent when you actually need one.

There’s a clear line between what AI tools can genuinely help with and what they can’t.

What AI can do

• Capture and categorise receipts – Tools like Dext (formerly Receipt Bank), Hubdoc, and MYOB’s receipt scanning handle this well. Take a photo, the app reads it, the transaction goes into your books. That’s not tax advice, it’s data entry, and AI is good at data entry.
• Reconcile transactions – Xero’s bank feed matching uses machine learning to suggest transaction categories based on your history. It gets better the longer you use it. Still needs a human review before you lock it, but it cuts hours off the process.
• Flag potential deductions you might have missed – Some accounting tools will surface categories you haven’t used that other businesses in your industry typically claim. That’s a prompt for a conversation with your accountant, not a claim to make on the spot.
• Organise and summarise your financials – Asking AI to summarise your P&L, list all transactions over a certain amount, or identify irregular expenses is legitimate. You’re asking it to do what a spreadsheet formula does, just faster.
• Draft questions for your accountant – Not a joke. If you’re unclear on something, use AI to help you articulate the question. Then take that question to a registered tax professional who knows Australian tax law.

What AI cannot do

• Give you tax advice – “Can I claim my home office?” sounds like a simple question. The answer depends on your business structure, how you use the space, your income type, and your substantiation records. AI can give you a general answer that’s wrong for your specific situation.
• Lodge your return – You cannot have an AI chatbot lodge your BAS or tax return. Full stop. Your registered tax agent has legal obligations around accuracy and compliance that a chatbot does not.
• Know what changed this year – Tax law changes. The ATO’s own guidance changes. AI training data has a cutoff, and the model doesn’t know what updates the ATO published last month. Challen specifically flagged this: AI may draw from outdated sources.
• Take responsibility if it gets it wrong – This is the part that matters. Under Australian tax law, you’re responsible for the accuracy of your return, even if you used an AI tool to help prepare it. The ATO will come to you, not ChatGPT.
• Make judgment calls – Grey areas in tax need judgment. That requires someone who knows the rules, knows your situation, and carries professional indemnity insurance. AI has none of those things.

How to use AI smartly this EOFY

Here’s a practical approach for sole traders and small business owners heading into tax time:

Before 30 June: Use AI-powered tools in Xero, MYOB, or Dext to get your books up to date. Reconcile everything. Make sure every transaction is categorised. Flag anything you’re unsure about.

At lodgement time: Use a registered tax agent. That’s not optional if you want to get this right. The AI does the admin. The accountant does the advice.

Between now and then: If you use ChatGPT or similar to research deductions, treat what you get as a starting point for a question, not an answer. Bring those questions to your accountant.

The ATO’s 2026 focus areas are work-related deductions and omitted income. If you overclaim because AI told you to, or if you miss declaring income from a side hustle, the consequences sit with you. Audit exposure. Interest. Penalties.

AI can save you hours on bookkeeping admin. It cannot save you from a tax audit. Know the difference.

Sources: ATO 2026 Tax Time Guidance, April 2026 (ato.gov.au); ATO Assistant Commissioner Anita Challen quoted in Dynamic Business, April 2026, and 7NEWS.com.au, May 2026; CPA Australia tax lead Jenny Wong quoted in 7NEWS.com.au, May 2026; Smart Company, April 2026.

📖 More deep dives: News Deep Dives

📖 More deep dives: News Deep Dives

📊 Compare AI tools side by side | 💼 Free resources & AI prompt packs

Sources

• 7NEWS.com.au
• Dynamic Business
• Get it on Gumroad →
• ato.gov.au
• Smart Company

More hot takes: Hot Takes →