---
title: "Taxation"
url: "https://ailawframework.com/practice/taxation"
type: "practice_area"
site: "AI Law Framework"
id: "A26"
task_count: 32
last_reviewed: "2026-10-10"
---

# Taxation

> Ground the analysis in the taxpayer, transaction and relevant period. Independently check the governing provisions, factual assumptions, calculations and available interpretations before advice or lodgement.

Canonical page: https://ailawframework.com/practice/taxation  
Last reviewed: 2026-10-10

Site index for agents: https://ailawframework.com/llms.txt

Also covers: Tax law; revenue law; fiscal law; income tax; CGT; GST; FBT; stamp duty/land tax (state); transfer pricing; thin capitalisation; R&D tax incentives; international tax; trust taxation; Division 7A

Australian taxation law practice spans income tax, CGT, GST, FBT, stamp duty, transfer pricing, R&D tax incentives, and dispute resolution before the ATO, Administrative Review Tribunal (ART), and Federal Court. The AI risk profile is exceptionally high: the legislative corpus is vast and interlocking (ITAA 1936, ITAA 1997, GSTA 1999, TAA 1953, and hundreds of subordinate instruments); ATO rulings and PCGs change frequently; hallucination of section numbers, case citations, and ruling references is catastrophic because wrong advice generates penalty tax and interest; and TPB(I) D62/2026 (exposure draft March 2026, consultation closed April 2026, final instrument pending) has explicitly confirmed that no AI use shifts professional responsibility away from the registered practitioner.

## Key facts

- Tasks: 32
- Green: 5, Yellow: 24, Red: 3
- Levels: Green is AI drafts and the lawyer checks; Yellow is lawyer and AI draft together; Red is the lawyer writes and AI may only check, clarify or collect data.

## Principles

- **Define the matter**: Confirm the client’s instructions, jurisdiction, intended output and the information available before dividing the work.
- **Verify the authorities**: Open each relied-on authority independently. Confirm its existence, current status, proposition and any quotation or pinpoint reference.
- **Reconcile the figures**: Trace every relied-on figure to its source, confirm dates and assumptions, and independently recalculate totals or derived amounts.

## Checklist

- Open each relied-on authority independently. Confirm its existence, current status, proposition and any quotation or pinpoint reference.
- Trace every relied-on figure to its source, confirm dates and assumptions, and independently recalculate totals or derived amounts.
- Calculate operative dates independently from the current rule and actual triggering event. Check exceptions and record the verified deadline.
- Check the current court or regulator requirements, prescribed form and attachments for the intended document and filing.
- Review operative clauses in the complete document, including definitions, cross-references, schedules and inconsistencies with the instructions.
- Confirm that the wording reflects the client’s instructions and contains no unintended admission, concession or commitment. Check the recipient and tone.
- Confirm that the actual tool, feature and processing terms permit use of this information, including access, retention, training and disclosure conditions.
- Obtain and inspect the relevant current official register or search result. Confirm identities, interests and the date and scope of the search.
- Verify the applicable jurisdiction and the version of each relevant law, rule or instrument in force at the material time.
- Resolve exceptions and record the responsible lawyer’s approval of the exact output and intended use.

## Restrictions

- Confirm firm, client and applicable court or professional restrictions before using any AI feature.

## Jurisdiction note

Apply this guidance to the actual matter and jurisdiction. Confirm current requirements before relying on an example.

## Basis

Practice guidance supports planning; the responsible lawyer confirms the scope, evidence and review requirements for the matter.

Also covers: Tax law; revenue law; fiscal law; income tax; CGT; GST; FBT; stamp duty/land tax (state); transfer pricing; thin capitalisation; R&D tax incentives; international tax; trust taxation; Division 7A

Australian taxation law practice spans income tax, CGT, GST, FBT, stamp duty, transfer pricing, R&D tax incentives, and dispute resolution before the ATO, Administrative Review Tribunal (ART), and Federal Court. The AI risk profile is exceptionally high: the legislative corpus is vast and interlocking (ITAA 1936, ITAA 1997, GSTA 1999, TAA 1953, and hundreds of subordinate instruments); ATO rulings and PCGs change frequently; hallucination of section numbers, case citations, and ruling references is catastrophic because wrong advice generates penalty tax and interest; and TPB(I) D62/2026 (exposure draft March 2026, consultation closed April 2026, final instrument pending) has explicitly confirmed that no AI use shifts professional responsibility away from the registered practitioner.

## Limits on AI assistance

Red lines — never in this area

## Limits on AI assistance

AI must never be used as the sole source for any statutory section number, subdivision, or division reference without verification against the current legislation on legislation.gov.au — the legislative corpus (ITAA 1936, ITAA 1997, TAA 1953, GSTA 1999) is large, overlapping, and frequently amended, and AI hallucination of provision numbers and Act attribution is a documented class failure in Australian tax. AI must never generate or supply a case citation, ATO ruling reference (TR, TD, CR, PCG, GSTR, LCR, TA), or ATO interpretive decision (ATO ID) without independent verification that the document exists on the ATO legal database, has not been withdrawn or amended, contains the passage attributed to it, and is of binding rather than merely persuasive status — AI fails to distinguish ATO advice product hierarchy (binding public rulings vs compliance-framework PCGs vs withdrawn ATO IDs). AI must never be used to set limitation periods, lodgement deadlines, or objection time limits without verification against s 14ZW TAA 1953 and current ATO administrative practice — the periods differ by assessment type (original income tax assessments: 4 years; amended income tax assessments: the later of 60 days or the remaining amendment period; other taxes: 60 days) and AI consistently misstates them; an incorrect deadline destroys the client's right of review. AI must never be used as the primary tool for transfer pricing benchmarking, arm's-length analysis, debt quantum assessment, or thin capitalisation calculations — these require access to verifiable comparables databases (e.g. Bureau van Dijk, Refinitiv) and the actual financial data of the taxpayer and related parties that AI does not have. AI output from any unvetted or consumer-grade tool must never be included in any document filed with the ATO, ART, or Federal Court without full independent re-derivation; citation of non-existent authority before the Federal Court now attracts indemnity cost orders and has been characterised judicially as 'fabricated, fictional, false, fake' (JML Rose Pty Ltd v Jorgensen (No 3) [2025] FCA 976, Wheatley J). Client tax information (TFN, ABN, income data, ATO correspondence, financial statements, privileged audit responses) must never be entered into any AI system not subject to a data-processing agreement reviewed by the firm's privacy officer and approved under the firm's AI tool register; client consent is required before their information enters any third-party AI platform (TPB(I) D62/2026); entering privileged ATO audit correspondence into consumer-grade AI risks LPP waiver (following United States v Heppner (US, 2026) — Australian courts have not yet ruled but are monitoring this development). AI must never produce or certify an expert opinion for tax litigation — expert reports filed in ART or Federal Court proceedings must reflect the expert's own reasoning and analysis (GPN-AI, 16 April 2026); any AI assistance in expert reports must be disclosed. AI must not be used to determine whether Part IVA ITAA 1936 (the general anti-avoidance rule) or s 100A ITAA 1936 (trust reimbursement agreements) apply to an arrangement — both require holistic judgment on scheme purpose, dominant purpose, and scheme benefit that is beyond current AI capability, and wrong advice produces penalties of up to 75% of the tax shortfall under Div 284 TAA 1953. AI must not be used to advise on the current status of the law regarding Division 7A and unpaid present entitlements (UPEs) from trusts to corporate beneficiaries — this area is in a state of legal flux following Commissioner of Taxation v Bendel [2025] FCAFC 15, with the High Court appeal heard on 14 October 2025 and outcome potentially post-dating AI training data; any AI output on this point must be treated as unreliable until independently verified against the current state of the law.

- AI must never be used as the sole source for any statutory section number, subdivision, or division reference without verification against the current legislation on legislation.gov.au — the legislative corpus (ITAA 1936, ITAA 1997, TAA 1953, GSTA 1999) is large, overlapping, and frequently amended, and AI hallucination of provision numbers and Act attribution is a documented class failure in Australian tax.
- AI must never generate or supply a case citation, ATO ruling reference (TR, TD, CR, PCG, GSTR, LCR, TA), or ATO interpretive decision (ATO ID) without independent verification that the document exists on the ATO legal database, has not been withdrawn or amended, contains the passage attributed to it, and is of binding rather than merely persuasive status — AI fails to distinguish ATO advice product hierarchy (binding public rulings vs compliance-framework PCGs vs withdrawn ATO IDs).
- AI must never be used to set limitation periods, lodgement deadlines, or objection time limits without verification against s 14ZW TAA 1953 and current ATO administrative practice — the periods differ by assessment type (original income tax assessments: 4 years; amended income tax assessments: the later of 60 days or the remaining amendment period; other taxes: 60 days) and AI consistently misstates them; an incorrect deadline destroys the client's right of review.
- AI must never be used as the primary tool for transfer pricing benchmarking, arm's-length analysis, debt quantum assessment, or thin capitalisation calculations — these require access to verifiable comparables databases (e.g. Bureau van Dijk, Refinitiv) and the actual financial data of the taxpayer and related parties that AI does not have.
- AI output from any unvetted or consumer-grade tool must never be included in any document filed with the ATO, ART, or Federal Court without full independent re-derivation; citation of non-existent authority before the Federal Court now attracts indemnity cost orders and has been characterised judicially as 'fabricated, fictional, false, fake' (JML Rose Pty Ltd v Jorgensen (No 3) [2025] FCA 976, Wheatley J).
- Client tax information (TFN, ABN, income data, ATO correspondence, financial statements, privileged audit responses) must never be entered into any AI system not subject to a data-processing agreement reviewed by the firm's privacy officer and approved under the firm's AI tool register; client consent is required before their information enters any third-party AI platform (TPB(I) D62/2026); entering privileged ATO audit correspondence into consumer-grade AI risks LPP waiver (following United States v Heppner (US, 2026) — Australian courts have not yet ruled but are monitoring this development).
- AI must never produce or certify an expert opinion for tax litigation — expert reports filed in ART or Federal Court proceedings must reflect the expert's own reasoning and analysis (GPN-AI, 16 April 2026); any AI assistance in expert reports must be disclosed.
- AI must not be used to determine whether Part IVA ITAA 1936 (the general anti-avoidance rule) or s 100A ITAA 1936 (trust reimbursement agreements) apply to an arrangement — both require holistic judgment on scheme purpose, dominant purpose, and scheme benefit that is beyond current AI capability, and wrong advice produces penalties of up to 75% of the tax shortfall under Div 284 TAA 1953.
- AI must not be used to advise on the current status of the law regarding Division 7A and unpaid present entitlements (UPEs) from trusts to corporate beneficiaries — this area is in a state of legal flux following Commissioner of Taxation v Bendel [2025] FCAFC 15, with the High Court appeal heard on 14 October 2025 and outcome potentially post-dating AI training data; any AI output on this point must be treated as unreliable until independently verified against the current state of the law.

## Jurisdiction-specific considerations

Australian traps

## Jurisdiction-specific considerations

DUAL ITAA TRAP: Australian income tax is governed by two Acts — ITAA 1936 and ITAA 1997 — that overlap and cross-reference each other. AI models routinely mis-attribute provisions between them (e.g. placing Div 7A in ITAA 1997, placing CGT events in ITAA 1936). Every cited provision must be verified against the correct Act on legislation.gov.au. The ITAA 1997 rewrote most of the ITAA 1936 in plain English but many legacy provisions (Div 7A, s 100A, Part IVA, Pt III) remain in the 1936 Act. AI consistently produces the wrong period. Small business taxpayers had a 2-year period for assessments for 2021-22 and earlier income years in certain circumstances. Missing the objection deadline is a hard jurisdictional bar — the Commissioner has a discretion to extend under s 14ZX TAA 1953 but it is not automatic. ATO RULING HIERARCHY AND BINDING EFFECT: ATO advice products have a strict hierarchy — public rulings (TR/TD/CR/GSTR/LCR) bind the Commissioner when the taxpayer's facts match; PCGs are compliance-risk frameworks, not binding; ATO IDs were retired in 2021 and do not bind; withdrawn documents have no effect. AI fails to distinguish these categories and cites withdrawn ATO IDs and draft PCGs as if they were binding authority. Always verify the status of any cited instrument on the ATO legal database. DIVISION 7A / UPE UNSETTLED LAW — BENDEL [2025] FCAFC 15: The Full Federal Court in Commissioner of Taxation v Bendel [2025] FCAFC 15 (19 February 2025) held that an unpaid present entitlement (UPE) owed by a trust to a corporate beneficiary is not a 'loan' for Div 7A purposes, overturning the ATO's 15-year administrative position. The High Court granted special leave to appeal and the matter was heard on 14 October 2025. AI training data may reflect the pre-Bendel position (the ATO's position), the Full Federal Court position, or may not reflect a High Court outcome at all. Any Div 7A advice involving corporate beneficiaries of trusts must be verified against the current state of the law before delivery. STATE TAX FRAGMENTATION: Stamp duty, land tax, and payroll tax operate under eight different state/territory Acts with materially different rates, thresholds, exemptions, and anti-avoidance provisions. AI cross-contaminates provisions between jurisdictions. Specific current traps: Victoria's economic entitlement provisions (Duties Act 2000, ss 7A-7C) apply to property transactions above prescribed thresholds and have no NSW equivalent; payroll tax contractor provisions differ materially between NSW, VIC, and QLD — particularly relevant for medical, dental, and legal practices; foreign person surcharges and land tax surcharges have changed multiple times across jurisdictions since 2022. TPB(I) D62/2026 (EXPOSURE DRAFT, MARCH 2026 — FINAL INSTRUMENT PENDING): The Tax Practitioners Board's draft information sheet on AI and the Code of Professional Conduct (Tax Agent Services Act 2009, s 30-10) requires: (a) client consent before entering client information into any AI tool treated as a third party; (b) independent verification of all AI outputs; (c) no transfer of professional responsibility to AI. Consultation closed 21 April 2026. The final instrument has not yet been published as at the date of this profile — monitor tpb.gov.au for the final TPB(I). Non-compliance with the finalised instrument may constitute a breach of the Code of Professional Conduct, triggering TPB disciplinary action including suspension or deregistration. FEDERAL COURT GPN-AI (16 APRIL 2026): The Federal Court's General Practice Note on Generative AI mandates disclosure at the start of any document (submissions, pleadings, evidence) where AI was used to generate material that informs evidence or submissions — the disclosure must state where in the document AI was used and how. Non-compliance risks adverse costs orders. For expert reports, AI assistance in summarising, analysing, or generating material that informs the expert's opinion must be disclosed. Applies to all Federal Court tax appeals filed on or after 16 April 2026. ADMINISTRATIVE REVIEW TRIBUNAL (ART) — AAT ABOLISHED 14 OCTOBER 2024: The AAT was abolished and replaced by the Administrative Review Tribunal effective 14 October 2024 (Administrative Review Tribunal Act 2024 (Cth)). AI trained before this date will refer to AAT jurisdiction, Division structure, forms, and rules that no longer exist. All tax appeal procedural references must be updated to the ART. Existing AAT applications were automatically transferred to the ART. Note that the ART does not use the AAT's divisional structure. PART IVA ITAA 1936 — EXPANDED GAAR AND AUDIT FOCUS AREAS: The government has proposed amendments to expand Part IVA to capture schemes that reduce tax paid in Australia by accessing lower withholding tax rates or that achieve an Australian tax benefit even where the dominant purpose was to reduce foreign tax. TA 2025/1 specifically flags Part IVA application to restructures designed to achieve MIT outcomes. PCG 2025/5 clarifies Part IVA application to personal services businesses. AI systematically omits Part IVA analysis when drafting positive advice or planning memos — the omission of an anti-avoidance analysis looks like a clean opinion but potentially exposes the client to penalties up to 75% of the tax shortfall. PENALTY UPLIFT RISK AND 'REASONABLY ARGUABLE POSITION' (Div 284 TAA 1953): A tax shortfall penalty is 25% for carelessness, 50% for recklessness, and 75% for intentional disregard. The base penalty is reduced to zero if the position was 'reasonably arguable' (s 284-15) and the taxpayer or their agent took reasonable care. Reliance on unchecked AI output that produces a tax shortfall is unlikely to constitute reasonable care and is unlikely to support a reasonably arguable position defence. The lawyer's independent analysis must be documented separately in the matter file. THIN CAPITALISATION REGIME CHANGE (1 JULY 2023): The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 replaced the safe-harbour debt amount with three tests: fixed-ratio test, group-ratio test, and third-party debt test. AI trained before or during the transition may apply the old safe-harbour regime. PCG 2025/2 (restructures and DDCR, finalised 20 August 2025) and draft PCG 2025/D2 (debt quantum) are post-cutoff instruments AI cannot reliably apply. PRIVILEGE AND CONFIDENTIALITY VIA AI TOOLS: Entering privileged ATO audit correspondence, legal advice, or objection materials into a consumer-grade AI tool whose terms permit data use for model training may waive legal professional privilege. In United States v Heppner (US federal court, 2026) documents processed through an AI tool were found to have lost attorney-client privilege on confidentiality grounds. Australian courts have not yet ruled on the equivalent point but the risk is live. Reasonable steps include: selecting AI tools with Australian data residency and verified data isolation, executing data processing agreements with AI vendors, and obtaining explicit client consent. The ATO's own AI transparency statement confirms it uses AI in compliance analytics — practitioners should be aware that ATO-generated correspondence may itself be AI-assisted.

- DUAL ITAA TRAP: Australian income tax is governed by two Acts — ITAA 1936 and ITAA 1997 — that overlap and cross-reference each other. AI models routinely mis-attribute provisions between them (e.g. placing Div 7A in ITAA 1997, placing CGT events in ITAA 1936). Every cited provision must be verified against the correct Act on legislation.gov.au. The ITAA 1997 rewrote most of the ITAA 1936 in plain English but many legacy provisions (Div 7A, s 100A, Part IVA, Pt III) remain in the 1936 Act.
- AI consistently produces the wrong period. Small business taxpayers had a 2-year period for assessments for 2021-22 and earlier income years in certain circumstances. Missing the objection deadline is a hard jurisdictional bar — the Commissioner has a discretion to extend under s 14ZX TAA 1953 but it is not automatic.
- ATO RULING HIERARCHY AND BINDING EFFECT: ATO advice products have a strict hierarchy — public rulings (TR/TD/CR/GSTR/LCR) bind the Commissioner when the taxpayer's facts match; PCGs are compliance-risk frameworks, not binding; ATO IDs were retired in 2021 and do not bind; withdrawn documents have no effect. AI fails to distinguish these categories and cites withdrawn ATO IDs and draft PCGs as if they were binding authority. Always verify the status of any cited instrument on the ATO legal database.
- DIVISION 7A / UPE UNSETTLED LAW — BENDEL [2025] FCAFC 15: The Full Federal Court in Commissioner of Taxation v Bendel [2025] FCAFC 15 (19 February 2025) held that an unpaid present entitlement (UPE) owed by a trust to a corporate beneficiary is not a 'loan' for Div 7A purposes, overturning the ATO's 15-year administrative position. The High Court granted special leave to appeal and the matter was heard on 14 October 2025. AI training data may reflect the pre-Bendel position (the ATO's position), the Full Federal Court position, or may not reflect a High Court outcome at all. Any Div 7A advice involving corporate beneficiaries of trusts must be verified against the current state of the law before delivery.
- STATE TAX FRAGMENTATION: Stamp duty, land tax, and payroll tax operate under eight different state/territory Acts with materially different rates, thresholds, exemptions, and anti-avoidance provisions. AI cross-contaminates provisions between jurisdictions. Specific current traps: Victoria's economic entitlement provisions (Duties Act 2000, ss 7A-7C) apply to property transactions above prescribed thresholds and have no NSW equivalent; payroll tax contractor provisions differ materially between NSW, VIC, and QLD — particularly relevant for medical, dental, and legal practices; foreign person surcharges and land tax surcharges have changed multiple times across jurisdictions since 2022.
- TPB(I) D62/2026 (EXPOSURE DRAFT, MARCH 2026 — FINAL INSTRUMENT PENDING): The Tax Practitioners Board's draft information sheet on AI and the Code of Professional Conduct (Tax Agent Services Act 2009, s 30-10) requires: (a) client consent before entering client information into any AI tool treated as a third party; (b) independent verification of all AI outputs; (c) no transfer of professional responsibility to AI. Consultation closed 21 April 2026. The final instrument has not yet been published as at the date of this profile — monitor tpb.gov.au for the final TPB(I). Non-compliance with the finalised instrument may constitute a breach of the Code of Professional Conduct, triggering TPB disciplinary action including suspension or deregistration.
- FEDERAL COURT GPN-AI (16 APRIL 2026): The Federal Court's General Practice Note on Generative AI mandates disclosure at the start of any document (submissions, pleadings, evidence) where AI was used to generate material that informs evidence or submissions — the disclosure must state where in the document AI was used and how. Non-compliance risks adverse costs orders. For expert reports, AI assistance in summarising, analysing, or generating material that informs the expert's opinion must be disclosed. Applies to all Federal Court tax appeals filed on or after 16 April 2026.
- ADMINISTRATIVE REVIEW TRIBUNAL (ART) — AAT ABOLISHED 14 OCTOBER 2024: The AAT was abolished and replaced by the Administrative Review Tribunal effective 14 October 2024 (Administrative Review Tribunal Act 2024 (Cth)). AI trained before this date will refer to AAT jurisdiction, Division structure, forms, and rules that no longer exist. All tax appeal procedural references must be updated to the ART. Existing AAT applications were automatically transferred to the ART. Note that the ART does not use the AAT's divisional structure.
- PART IVA ITAA 1936 — EXPANDED GAAR AND AUDIT FOCUS AREAS: The government has proposed amendments to expand Part IVA to capture schemes that reduce tax paid in Australia by accessing lower withholding tax rates or that achieve an Australian tax benefit even where the dominant purpose was to reduce foreign tax. TA 2025/1 specifically flags Part IVA application to restructures designed to achieve MIT outcomes. PCG 2025/5 clarifies Part IVA application to personal services businesses. AI systematically omits Part IVA analysis when drafting positive advice or planning memos — the omission of an anti-avoidance analysis looks like a clean opinion but potentially exposes the client to penalties up to 75% of the tax shortfall.
- PENALTY UPLIFT RISK AND 'REASONABLY ARGUABLE POSITION' (Div 284 TAA 1953): A tax shortfall penalty is 25% for carelessness, 50% for recklessness, and 75% for intentional disregard. The base penalty is reduced to zero if the position was 'reasonably arguable' (s 284-15) and the taxpayer or their agent took reasonable care. Reliance on unchecked AI output that produces a tax shortfall is unlikely to constitute reasonable care and is unlikely to support a reasonably arguable position defence. The lawyer's independent analysis must be documented separately in the matter file.
- THIN CAPITALISATION REGIME CHANGE (1 JULY 2023): The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 replaced the safe-harbour debt amount with three tests: fixed-ratio test, group-ratio test, and third-party debt test. AI trained before or during the transition may apply the old safe-harbour regime. PCG 2025/2 (restructures and DDCR, finalised 20 August 2025) and draft PCG 2025/D2 (debt quantum) are post-cutoff instruments AI cannot reliably apply.
- PRIVILEGE AND CONFIDENTIALITY VIA AI TOOLS: Entering privileged ATO audit correspondence, legal advice, or objection materials into a consumer-grade AI tool whose terms permit data use for model training may waive legal professional privilege. In United States v Heppner (US federal court, 2026) documents processed through an AI tool were found to have lost attorney-client privilege on confidentiality grounds. Australian courts have not yet ruled on the equivalent point but the risk is live. Reasonable steps include: selecting AI tools with Australian data residency and verified data isolation, executing data processing agreements with AI vendors, and obtaining explicit client consent. The ATO's own AI transparency statement confirms it uses AI in compliance analytics — practitioners should be aware that ATO-generated correspondence may itself be AI-assisted.

## Risks to address

How it goes wrong

## Risks to address

Hallucinated ATO ruling references: AI generates plausible-looking ruling numbers (e.g. TR 2019/3, PCG 2021/5) that either do not exist or do not support the stated proposition — directly evidenced by the Deloitte government report incident (October 2025) where fabricated Federal Court quotes and fictitious case law were included in a $440,000 published report to Australian government authorities. ITAA 1936/1997 conflation: AI places provisions in the wrong Act (e.g. cites s 100A as an ITAA 1997 provision, attributes CGT small business concessions to the 1936 Act, places Div 7A in the 1997 Act), producing advice that cites non-existent legislative authority — this is the single most common AI failure mode specific to Australian income tax. Div 7A / UPE blind spot post-Bendel: AI applies either the pre-Bendel ATO administrative position (UPEs are loans for Div 7A) or the Full Federal Court position (UPEs are not loans) without flagging that the law is actively in flux pending a High Court outcome — either position applied as settled law produces potentially wrong advice affecting hundreds of thousands of trusts with corporate beneficiaries. Stale thin capitalisation analysis: AI applies the pre-1 July 2023 safe-harbour debt amount regime to multinational entities, producing analysis that is legally wrong under the current fixed-ratio/group-ratio/third-party debt test framework; also fails to apply PCG 2025/2 (restructures and DDCR) and draft PCG 2025/D2 (debt quantum) which are post-cutoff instruments. Wrong ART references post-October 2024: AI cites AAT jurisdiction, rules, forms, and divisional structure that have been superseded by the Administrative Review Tribunal Act 2024 and ART Rules — every procedural step in a tax appeal filed after 14 October 2024 is potentially wrong if derived from AI without verification.

- Hallucinated ATO ruling references: AI generates plausible-looking ruling numbers (e.g. TR 2019/3, PCG 2021/5) that either do not exist or do not support the stated proposition — directly evidenced by the Deloitte government report incident (October 2025) where fabricated Federal Court quotes and fictitious case law were included in a $440,000 published report to Australian government authorities.
- ITAA 1936/1997 conflation: AI places provisions in the wrong Act (e.g. cites s 100A as an ITAA 1997 provision, attributes CGT small business concessions to the 1936 Act, places Div 7A in the 1997 Act), producing advice that cites non-existent legislative authority — this is the single most common AI failure mode specific to Australian income tax.
- Div 7A / UPE blind spot post-Bendel: AI applies either the pre-Bendel ATO administrative position (UPEs are loans for Div 7A) or the Full Federal Court position (UPEs are not loans) without flagging that the law is actively in flux pending a High Court outcome — either position applied as settled law produces potentially wrong advice affecting hundreds of thousands of trusts with corporate beneficiaries.
- Stale thin capitalisation analysis: AI applies the pre-1 July 2023 safe-harbour debt amount regime to multinational entities, producing analysis that is legally wrong under the current fixed-ratio/group-ratio/third-party debt test framework; also fails to apply PCG 2025/2 (restructures and DDCR) and draft PCG 2025/D2 (debt quantum) which are post-cutoff instruments.
- Wrong ART references post-October 2024: AI cites AAT jurisdiction, rules, forms, and divisional structure that have been superseded by the Administrative Review Tribunal Act 2024 and ART Rules — every procedural step in a tax appeal filed after 14 October 2024 is potentially wrong if derived from AI without verification.

## Review checklist

The lawyer's review checklist

## Review checklist

Verify every cited statutory provision (section, division, subdivision, Act) against legislation.gov.au current version — flag if the provision is in ITAA 1936 vs ITAA 1997, if it has been amended, repealed, or renumbered since the AI model's knowledge cutoff, and whether any 2024 Act amendments apply. Verify every ATO ruling, TD, PCG, GSTR, CR, LCR, or taxpayer alert cited: confirm it exists on the ATO legal database, has not been withdrawn or amended, is of binding (public ruling) rather than merely persuasive status, and actually supports the proposition for which it is cited. Confirm all limitation periods, lodgement deadlines, and objection periods against s 14ZW TAA 1953 and current ATO administrative practice — treat AI-generated periods as presumptively wrong; specifically confirm whether the original income tax assessment 4-year period or the 60-day period applies to the specific type of assessment. For any trust distribution, Div 7A, or UPE analysis: independently verify the current state of the law against Commissioner of Taxation v Bendel [2025] FCAFC 15 and any subsequent High Court outcome — do not rely on AI output in this area without checking whether a High Court decision post-dates the AI's training. Assess whether the AI's analysis addresses Part IVA ITAA 1936 (general anti-avoidance) and s 100A ITAA 1936 (trust reimbursement agreements) — AI systematically omits or under-analyses these provisions; lawyer must perform this analysis independently and document it in the matter file. For any state tax element: independently check the relevant state Act and current revenue authority guidance — confirm provisions are sourced from the correct state's legislation and that rates, thresholds, and exemptions reflect the current version. Confirm that no client-identifying information (TFN, ABN, financial data, ATO correspondence, privileged legal advice) was entered into an unapproved AI tool; if any was, record whether prior client consent was obtained, whether a data processing agreement is in place, and whether the tool is on the firm's approved AI register (TPB(I) D62/2026 requirement). For any document to be filed in Federal Court or ART proceedings: confirm whether GPN-AI disclosure is required (mandatory for any document where AI generated material that informs evidence or submissions); verify all procedural steps use ART (not AAT) rules and forms; verify all case citations independently. Record in the matter file: which AI tool was used, what was generated, what prompts were provided, what was entered, what independent verification was performed, and who performed it — this audit trail is required under the firm's AI governance framework, supports the 'reasonably arguable position' defence under Div 284 TAA 1953, and evidences compliance with TPB(I) D62/2026.

- Verify every cited statutory provision (section, division, subdivision, Act) against legislation.gov.au current version — flag if the provision is in ITAA 1936 vs ITAA 1997, if it has been amended, repealed, or renumbered since the AI model's knowledge cutoff, and whether any 2024 Act amendments apply.
- Verify every ATO ruling, TD, PCG, GSTR, CR, LCR, or taxpayer alert cited: confirm it exists on the ATO legal database, has not been withdrawn or amended, is of binding (public ruling) rather than merely persuasive status, and actually supports the proposition for which it is cited.
- Confirm all limitation periods, lodgement deadlines, and objection periods against s 14ZW TAA 1953 and current ATO administrative practice — treat AI-generated periods as presumptively wrong; specifically confirm whether the original income tax assessment 4-year period or the 60-day period applies to the specific type of assessment.
- For any trust distribution, Div 7A, or UPE analysis: independently verify the current state of the law against Commissioner of Taxation v Bendel [2025] FCAFC 15 and any subsequent High Court outcome — do not rely on AI output in this area without checking whether a High Court decision post-dates the AI's training.
- Assess whether the AI's analysis addresses Part IVA ITAA 1936 (general anti-avoidance) and s 100A ITAA 1936 (trust reimbursement agreements) — AI systematically omits or under-analyses these provisions; lawyer must perform this analysis independently and document it in the matter file.
- For any state tax element: independently check the relevant state Act and current revenue authority guidance — confirm provisions are sourced from the correct state's legislation and that rates, thresholds, and exemptions reflect the current version.
- Confirm that no client-identifying information (TFN, ABN, financial data, ATO correspondence, privileged legal advice) was entered into an unapproved AI tool; if any was, record whether prior client consent was obtained, whether a data processing agreement is in place, and whether the tool is on the firm's approved AI register (TPB(I) D62/2026 requirement).
- For any document to be filed in Federal Court or ART proceedings: confirm whether GPN-AI disclosure is required (mandatory for any document where AI generated material that informs evidence or submissions); verify all procedural steps use ART (not AAT) rules and forms; verify all case citations independently.
- Record in the matter file: which AI tool was used, what was generated, what prompts were provided, what was entered, what independent verification was performed, and who performed it — this audit trail is required under the firm's AI governance framework, supports the 'reasonably arguable position' defence under Div 284 TAA 1953, and evidences compliance with TPB(I) D62/2026.

## Tasks (32)

| Task | Level | How AI is used | What the lawyer must review |
| --- | --- | --- | --- |
| [Draft a tax advice letter from the facts and the issues list](https://ailawframework.com/practice/taxation/draft-a-tax-advice-letter-from-the-facts-and-the-issues-list.md) | Yellow | Produce a structured first draft (facts, issues, analysis headings, conclusion placeholder) from the lawyer's facts and the instruments the lawyer has named. | Rewrite the analysis Verify every section, ruling and case in a trusted source Remember the signing lawyer owns the conclusion |
| [Draft a tax objection or protest from the assessment and the file](https://ailawframework.com/practice/taxation/draft-a-tax-objection-or-protest-from-the-assessment-and-the-file.md) | Yellow | Draft the objection structure — grounds, facts, relief sought — from the assessment, the return papers and the lawyer's issues list. | Confirm the limitation period and the correct form Reconcile every figure to the assessment |
| Draft tax appeal or review submissions | Yellow | Under the lawyer's direction the tool works up and revises the contentions in the appeal statement or statement of facts, issues and contentions from the… | The lawyer writes every ground and contention, then checks their own draft against the objection itself: whether each ground was stated there or requires… |
| [Draft a private or product ruling application](https://ailawframework.com/practice/taxation/draft-a-private-or-product-ruling-application.md) | Yellow | Draft the scheme description, facts, questions and supporting documents list from the transaction papers. | Check the scheme description matches the real transaction Complete the facts; incomplete facts can void protection |
| Classify supplies for goods-and-services or value-added tax | Yellow | From the contracts and an invoice sample, tabulate supplies with a candidate taxable, exempt, zero-rated or out-of-scope label and the clause or fact behind it. | Apply the current goods-and-services or value-added tax statute Do not leave a generated label on a return |
| [Build a capital-gains calculation framework from the transaction papers](https://ailawframework.com/practice/taxation/build-a-capital-gains-calculation-framework-from-the-transaction-papers.md) | Yellow | Extract dates, consideration, cost elements and claimed concessions into a calculation table with document references. | Check acquisition date, cost base and concession conditions against the statute that applies Identify the event correctly before relying on the arithmetic |
| Classify employee benefits for fringe or employment-taxes review | Yellow | From the benefits register, classify each benefit type, flag likely exemptions and list the facts still needed for the return. | Confirm the current rate and the year-end that applies Do not file a generated classification |
| [Build a transfer-pricing facts and methods table](https://ailawframework.com/practice/taxation/build-a-transfer-pricing-facts-and-methods-table.md) | Red | Extract related-party transactions, prices, contracts and comparable-search papers into a table mapped to the method the lawyer has selected. | Form the transfer-pricing opinion yourself; it is fact-heavy Use the table as an index, not the analysis |
| [Draft an R&D activity description against the eligibility tests](https://ailawframework.com/practice/taxation/draft-an-r-and-d-activity-description-against-the-eligibility-tests.md) | Yellow | Turn the technical notes into a first-draft activity description, separating core and supporting activities and listing missing evidence. | Apply the current R&D tests Do not treat ordinary product development as experimental because a draft says so |
| [Build a shareholder-loan and trust-distribution issues table](https://ailawframework.com/practice/taxation/build-a-shareholder-loan-and-trust-distribution-issues-table.md) | Red | From the accounts, minutes and loan documents, list payments, loans, unpaid entitlements and related-party dealings with a candidate tax issue on each row. | Apply the current deemed-dividend, trust and anti-avoidance rules Do not rely on neighbouring-country case law |
| Map transfer, landholding or payroll taxes on a transaction | Yellow | Extract the taxable facts (property, consideration, grouping, landholdings) into a table lined up against the tax heads the lawyer has named. | Apply each place's own state tax statute Do not mix rates, grouping or primary-production exemptions across borders |
| [Build a tax due-diligence issues list from the data room](https://ailawframework.com/practice/taxation/build-a-tax-due-diligence-issues-list-from-the-data-room.md) | Yellow | Map the data-room papers to a tax DD checklist (returns, audits, losses, incentives, employment taxes, international) and mark empty folders. | Open the document on each row Check trust, partnership and incentive facts that generic checklists miss |
| [Map taxing points for an employee share or option plan](https://ailawframework.com/practice/taxation/map-taxing-points-for-an-employee-share-or-option-plan.md) | Yellow | From the plan rules and offer documents, list grant, vesting, exercise and disposal events with a candidate taxing point and reporting obligation on each row. | Confirm the plan actually meets any concession conditions Check you have not mixed up the start-up and deferred regimes |
| Build a transaction steps paper from the deal documents | Yellow | Turn the term sheet, agreements and board papers into a dated steps paper of who does what, with tax-sensitive steps flagged for the lawyer. | Check every step against the documents that will actually be signed Look for missing steps; one can change the tax result |
| Reconcile a tax computation to the accounts and the workpapers | Yellow | Compare the draft computation, the accounts and the workpapers and list unexplained differences by line. | Find a source for every difference Do not let a generated reconciliation change a filed position |
| Extract tax representations, indemnities and locked-box figures from an SPA | Green | Pull tax warranties, indemnities, conduct-of-claims and locked-box or completion-accounts tax lines into a table with clause references. | Read each clause with the definitions Check if 'tax' covers goods-and-services, value-added, sales or payroll tax; it changes risk |
| Prepare an information request for a return position or ruling | Yellow | Map the available facts to the ruling or return checklist the lawyer has selected and draft a request for the missing documents. | Send only the questions that change the analysis Do not let the tool invent a scheme |
| [Set an AI-use protocol for a tax practice under the TPB Code](https://ailawframework.com/practice/taxation/set-an-ai-use-protocol-for-a-tax-practice-under-the-tpb-code.md) | Yellow | Draft a protocol mapping AI tasks to Code obligations (competence, confidentiality, reasonable care). | Check against TPB(GS) 55/2026 and sign off which tasks may use AI. |
| Summarise a private ruling or ATO interpretative decision for a client | Yellow | Draft a plain-language summary of the ruling and its conditions. | Tax lawyer checks against the ruling text and currency. |
| Build a document index for an ATO audit or review response | Green | Classify and index documents produced for the ATO request. | Review privilege and completeness before production. |
| Draft responses to an ATO information request from the client's records | Red | Draft answers mapped to each request item. | Lawyer settles all answers; accuracy duties to the ATO apply. |
| Check that AI-assisted tax advice cites current legislation and rulings | Green | Flag citations and confirm they exist and are current. | Lawyer verifies every citation in the source. |
| Assess privilege risk before uploading tax advice to AI tools | Yellow | List documents that are privileged and the tool's data terms. | Lawyer decides what may be uploaded. |
| Assess privilege risk before using AI on tax advice | Yellow | Review privilege risk. | Lawyer decides. |
| Summarise tax technology changes for clients | Green | Summarise ATO and tax technology developments. | Lawyer verifies. |
| Run ATO ruling citation checks | Green | Verify that rulings exist and are current. | Lawyer signs off. |
| Draft a private ruling request and check each cited provision against the legislation it names | Yellow | Draft the request from the facts the client supplied and the provisions the lawyer has opened. | Open each cited provision. Remove a provision the compilation does not contain. |
| Prepare a depreciation schedule from the client's asset register | Yellow | List assets, costs and dates from the register into a schedule. | Match every cost and date to the register. The tax agent remains responsible for the figure that is lodged. |
| Draft an objection to an income tax assessment from the notice of assessment | Yellow | Draft the objection from the notice of assessment and the client's instructions. | Match the year, the tax and the grounds to the notice. Do not add a ground the notice and the instructions do not support. |
| Record on the file that a generated objection was checked against TPB(GS) 55/2026 before lodgement | Yellow | List the checks the agent still has to do. Do not mark the checks as done. | The agent reads TPB(GS) 55/2026, completes the checks, and only then records them on the file. |
| Draft advice on whether a supply is a taxable supply and check the reasoning against the statute | Yellow | Set out the supply facts. Do not conclude that the supply is taxable. | The tax agent reads the statute and decides. A generated conclusion is not that decision. |
| Prepare rental-property tax-return questions from the prior-year labels without filling figures the client has not given | Yellow | List questions from the prior-year labels. Leave the figures blank. | Do not accept a figure the client has not supplied. The agent checks the return before it is lodged. |

## Jurisdiction notes

### New Zealand

#### Governing law

Income Tax Act 2007, administered by Inland Revenue. Take GST and other taxes from current IRD material.

#### Forum

The Taxation Review Authority is listed in the Courts of New Zealand GenAI guidelines.

#### Not Australian law

No ATO, no Division 7A, no CGT event labels and no state stamp duty. Do not draft an ATO objection or ART tax appeal.

- Do not quote an ATO public ruling or a CGT event code as New Zealand law.

Sources:

- [Income Tax Act 2007](https://www.legislation.govt.nz/act/public/2007/97/en/latest/) (checked 2026-09-23)
- [Courts of New Zealand: GenAI guidelines — Lawyers (7 December 2023)](https://www.courtsofnz.govt.nz/assets/6-Going-to-Court/practice-directions/practice-guidelines/all-benches/20231207-GenAI-Guidelines-Lawyers.pdf) (checked 2026-09-23)

### United States

Local name: Taxation

#### Governing law

Internal Revenue Code, Treasury regulations and Circular 230, not the ITAA. State taxes are state law.

#### IRS OPR 2026-19

Maps generative AI to Circular 230 §§ 10.22, 10.27, 10.35, 10.36 and 10.37 and to IRC §§ 6713 and 7216 (unauthorised use of return information).

#### Review

Review AI-created documents before they go to a client or the IRS.

- Do not upload tax return information to a public generative tool.
- Do not deliver written tax advice whose citations and calculations you have not authenticated.

Sources:

- [IRS Office of Professional Responsibility, Issue 2026-19, Introductory Guidelines for Responsible AI Use in Federal Tax Practice](https://www.irs.gov/pub/opr-taxpros/issue-number-2026-19-introductory-guidelines-for-responsible-ai-use-in-federal-tax-practice.pdf) (checked 2026-09-23)
- [IRS Office of Professional Responsibility and Circular 230](https://www.irs.gov/tax-professionals/office-of-professional-responsibility-and-circular-230) (checked 2026-09-23)
- [ABA Formal Opinion 512, Generative Artificial Intelligence Tools (29 July 2024)](https://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/ethics-opinions/aba-formal-opinion-512.pdf) (checked 2026-09-23)

*Practice guidance for planning and review. Confirm current primary sources and the requirements of the actual matter. This is general information, not legal advice.*