You can’t ‘just say AI told me’: ATO lays out position on taxpayer use of AI

At The Tax Institute’s Women in Tax NSW Lunch panel discussion on how the use of AI is changing the future of the tax profession, ATO deputy chief tax counsel Rajitha Srikhanta spoke positively about the use of AI by taxpayers to support their tax affairs, and called the tool a “great leveller” that logs every step so a taxpayer can explain how they arrived at their outcome.

However, she said the ATO’s priority is to understand a taxpayer’s tax position and how they arrived at their conclusions.

“At the end of the day you make a statement to the commissioner that the information you’re providing is truly correct and you sign a declaration to that effect,” Srikhanta said.

“For those who use AI, we want to know if they can explain the decision that they’ve reached. We’re saying that it’s not reasonable care if you just say AI told me. You need to understand how the sausage was made. What was put in the sausage? How was it pulled together? What came out the other end?”

The ATO is developing guidance and advice and is proposing to update various products to address taxpayer use of AI in complying with tax obligations.

For its draft update to Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness, and intentional disregard, the ATO said its purpose is to provide guidance on how the concept of “reasonable care” applies where taxpayers use AI in complying with their tax obligations.

In its Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable, the ATO stated its purpose as providing guidance on how the concept of “reasonably arguable position” applies and where taxpayers use AI in complying with their tax obligations.

The ATO is also preparing a fact sheet to explain proper use of AI in interactions with the ATO and in complying with tax obligations.

“The fact sheet is intended to promote the safe and responsible use of AI and may include practical information about the importance of using accurate facts, checking outputs against reliable sources such as legislation, case law and ATO public advice and guidance and reviewing AI-generated outputs for accuracy before relying on them,” the ATO said.

Human element more vital than ever

Srikhanta said that for a use case, the ATO would undertake many assessments including a data ethics assessment, a risk assessment, and a cyber assessment to determine if the taxpayer has fulfilled their tax obligations.

While Srikhanta clarified that the ATO does not object to the use of AI, she underscored that the responsibility for the outcome lies with the taxpayer and their accountant.

As such, this presents an opportunity for accountants to understand how and where AI is being used across their tax functions and how taxpayers are arriving at their outcomes and conclusions.

“If anything, I think humans become more important,” Srikhanta said.

“Your role as leaders and managers becomes more important because you need to have that ongoing dialogue with your clients about what it is that they came up with.”

Srikhanta compared AI to a new starter or a young graduate who follows the instructions of a senior executive without giving due thought to the various nuances. Similarly, it is the human who will bring the experience and nuances to each taxpayer’s scenario, not AI, she said.

“I think at least for the short and near-term future it’s a hybrid, and AI will help. It will bring speed and scale,” she said.

“But people are going to bring context, judgement, and nuance. As leaders, we have a responsibility to bring up the next generation so they can do the job that we’re doing with that same experience, judgement, and expertise.”

Srikhanta encouraged the next generation of accountants to critically challenge the information presented to them, including the information generated by AI, to ensure that it is accurate.

“I would tell younger people not to lose their curiosity,” she said.

“Questioning the information is what leads to a better outcome. From a tax office perspective, AI will not understand emotional context. What we do is going to have an impact, and sometimes it’s for the greater good. So, I think it’s important to continue questioning.”

The ATO’s advice and guidance on taxpayer use of AI in tax affairs is currently in consultation, and the draft could be released around early December, according to Srikhanta.