Do you need to tell clients you use AI?

You know the client. The one who reads the engagement letter all the way to the end, which almost nobody does, and stops on page two with a finger on a line. Last year the letter said nothing about software. This year somebody added a sentence about artificial intelligence, because everyone was adding one, and now there is a question in the room that you didn't plan for.

Do you mean a computer is doing my tax now?

You can answer that well or badly, and most of the difference is decided before the meeting. A practice that knows which tools it uses, what they do and where the information goes can answer in two sentences. A practice that added the line because a webinar said to will find out, in front of the client, that it doesn't know.

Most of that preparation is knowing what you have to tell clients, having the words ready, and keeping proof that you said them.

What the guidance asks, and what it only suggests

The requirement isn't new. It is the confidentiality obligation you already have under the Code, applied to a new kind of third party. The guidance is also relaxed about the form the permission takes. A signed engagement letter can do it, and so can a general authority to disclose to third parties, which many letters already carry. You probably don't need a separate AI consent form for every client.

The recommendation is where the disclosure lives. The Board would like clients to know who their information is disclosed to, where, where it is stored, and whether AI is used. That is best practice rather than a rule. It is also cheap to do once you know the answers, and nearly impossible to do honestly if you don't.

We went through the guidance in more detail in what the TPB's AI guidance asks of a practice, including the part about documenting your review, which most firms have missed. What follows here is the conversation with the client.

What a client actually wants to know

Is a person still doing my return? This is nearly always the first question, and the honest answer is the reassuring one. A tool may read the documents and draft the schedules, and a person at the practice checks the work, makes the judgement calls and signs. If that isn't true of how you work, fix the process before you write the paragraph.

Where does my stuff go? Most clients don't want a list of companies. They want to know you have one. "The tools we use are run by other companies, some of them overseas, and I can give you the list" is a better answer than a confident "it's all secure", which nobody can check and nobody believes.

Can I opt out? Some clients will want to. Decide beforehand what that means for your practice: whether you can do their work without the tool, and whether it changes the fee or the timing. An opt-out you haven't thought through tends to get made up on the spot, usually in a way you regret in May.

A few will also ask whether it makes the job cheaper. Have an answer, whatever it is. "It means we spend more of the time on checking and less on typing" is true for most practices and doesn't promise a discount.

A paragraph you can start from

Use of software and artificial intelligence. We use software tools, including artificial intelligence (AI), to help prepare your work: for example, to read the documents you give us and to draft schedules and workpapers. Some of these tools are provided by other companies, and some of them process information [outside Australia / in the countries listed on our website]. When we use them, information about your affairs may be disclosed to those providers, only so they can do this work for us. A member of our team reviews what these tools produce, and a registered tax agent at our practice remains responsible for the work we do for you and for anything we lodge. We keep a list of the providers we use and where they process information, and we will give it to you on request. By signing this letter you consent to these disclosures. If you would prefer that we do not use these tools on your work, tell us and we will explain what that means for how we do it.

This is a starting point, not settled wording, and it isn't legal advice. Have your own adviser check it against your engagement letter and your practice before you use it, and look at what your professional body and your PI insurer say. An existing general authority in your letter may already cover part of this, so the two need to read together rather than repeat or contradict each other.

Two things the paragraph deliberately leaves out. It doesn't say the client's information is never used to train anything, because whether that is true depends on each tool's terms, and you would need to have checked every one. And it doesn't describe the tools as secure, approved or compliant. Nobody approves them, and the guidance doesn't endorse any product.

If someone in the office is still pasting client files into whatever chat window is open, the paragraph won't cover that, because nobody chose that tool. We wrote about that problem in using general AI chat tools on client tax work.

Where to record that you told them

In practice that comes down to a few habits.

• File the signed letter on the client's record, not in someone's inbox. If the letter is signed electronically, keep the completed copy and its signing record together.
• Date the clause. When you change the wording, give it a version, even if that is just the month. A client who signed in 2025 agreed to the 2025 paragraph, and you should be able to show which one that was.
• Keep the tool list with a date on it. One line per tool: what it does on client work, who provides it, where it processes information. When it changes, save the old one rather than overwriting it. That list is also what you hand the client who asks.
• Write a file note when a client asks a question or opts out. One or two lines, dated. An opt-out also needs to be visible to whoever picks up the file next season, so put it somewhere they will see it before they upload anything, not at the bottom of a note.
• Re-sign when the engagement is renewed. If your letters go out every year, the clause goes with them, and so does any change in the tools.

None of this is a record of your review, which is the other half of what the guidance expects. That lives in the workpaper file and is a separate job.

If BeforeMay is one of the tools on your list, our FAQ sets out where client documents are stored, what is stripped before anything leaves Australia, and which providers process the rest and where. You can copy those answers into your list. Getting the client's permission, and settling the wording of your own paragraph, stay with you.