Time to read : 6 Minutes
Ask a number of different people and you’ll get a number of different theories about how AI is and will impact our lives. From human replacement to admin assistant, artificial intelligence wears a number of different hats. So I started to wonder if one of those hats could be helping me out at tax time.
Most people would be aware of ChatGPT, an AI-powered chatbot. It generally uses the same process as predictive text on your phone or computer. You type in an enquiry and it responds to you based on large amounts of data it has been ‘trained’ with, providing you with the most likely series of words to follow whatever prompt you’ve provided.
That overly simplified explanation gives you an idea of why AI could, in theory, handle your tax return. And as a necessary task that many of us do not enjoy, doing our taxes feels like the perfect place to seek some external assistance.
So this year I decided I’d let AI have a run at my taxes. But unfortunately, it wasn’t as seamless of an experience as I hoped it would be.
Here’s my situation
In the last financial year, I’ve had two salaried jobs that make up my primary income. But I also freelance on the side, an income which fluctuates wildly. I work from an office three days a week and my main claimable expenses are things I need for my freelance income, including home office supplies and subscription products.
This makes my tax return slightly more complex than someone who only earns one income, but a lot less than someone running their own business or with a significant investment portfolio. I figured this should make it fairly easy for AI to get involved.
How can I use AI in my tax return?
In my research I found two different options. Firstly, there are apps which connect to your bank account. They monitor your expenditure – and the categories they fall within – and your income to then make suggestions on your return. They can also provide you with some generalised tips based on your industry, role and postcode.
I was a bit wary of connecting my bank account to a third party app, so I turned to the second option and started using ChatGPT to answer my questions while I completed my return using the ATO portal.
Be aware: the ATO does not endorse any third party AI-based apps or platforms. The ATO recommends anyone needing help on their tax return to seek the assistance of a registered tax agent.
Can an AI chatbot answer my tax questions?
I opened ChatGPT and typed 'can you help me complete my tax return'. Oops – I forgot to tell it I was in Australia, so was immediately asked for my social security number. But when I told it I was in Australia, it wasn’t deterred, and happily helped me with any questions. Perfect.
Here’s a snapshot into my journey with ChatGPT:
I usually see a professional to complete my tax return (journalists are notoriously bad at maths!) so even with AI behind me, the tax return process sent me into a bit of a spiral.
When I asked ChatGPT about what I should do if 'I was stressed about my tax return', it told me to seek expert advice, and listed the penalties for providing incorrect information to the ATO. Not calming!
I began by asking ChatGPT the basic question 'how does the ATO define a "spouse"' and this was fine, it sourced information from the ATO website and brought it back quicker than I could find it myself.
It was also able to quickly answer questions I had about annual leave payouts and salary sacrificing. I fact checked the information provided and as it came straight from the ATO website, it was correct.
But what happened next…
The wheels began to fall off when I needed more specific advice. ChatGPT could tell me that my freelance income would likely classify as Personal Services Income. But because it was regurgitating the ATO website, it couldn’t help me with how I needed to register that on my tax return, and when I got an error on the ATO form, it was unable to tell me why.
This is the fundamental issue with using a chatbot to complete your tax return. You still need to have a level of knowledge to interpret and apply the information. It can be a quick way to source answers to simple questions, but it can’t interpret and apply the answers like an expert would.
I tried another chatbot, this one is specifically built to provide an ‘insight into the Australian tax system’, and it also regurgitated ATO information. I muddled through my return with my chatbot assistants and ended up with an estimate of a tax bill of $252.
So although I could complete my return for free, I was expected to cop a tax bill – which was unusual for me.
H&R Block Director of Tax Communications, Mark Chapman, says AI can only use the information it’s been trained with, and that probably isn’t enough to support you through your tax return.
“In broad terms, AI is technology that helps computers gather information and figure out solutions in ways that imitate human thinking. AI uses data to learn – the greater the data, the “smarter” the AI. The key word is “imitate”. It is important to note that the AI solution is drawing on the experience of people who may not have formal tax training, or any tax training at all,” he said.
What about an app?
While I wasn’t comfortable connecting an app to my bank account, I could still use the other features it provided. I created an account and input some information about my situation, which allowed it to make some suggestions.
The app did have a number of useful features for organising a return:
Using my industry, job title and postcode, it made a number of suggestions about potential claims I could make.
After I input my work from home days, it calculated the allowance I would be allowed to claim (although it did lock this to a 90-day period unless I upgraded to the paid version).
You can also use the system to track your travel, including car mileage.
If you don’t want to connect your bank account and allow it to track transactions in that way, you can still scan receipts and use it to monitor spend manually.
Important note: I don’t believe any of these features are unique, and the ATO itself has an app that offers most of them.
Where AI comes in is to provide suggestions based on my circumstances. The suggestions provided based on my postcode weren’t particularly insightful, but it was interesting to see what other people working in my industry claim.
Once I started to input my deductions, I noticed some issues.
The app told me how much I would need to claim – based on my salary – to get a maximum refund. This in itself isn’t a bad feature, but you can’t gamify your tax return like you can other admin tasks.
The functionality was very basic, it wasn’t able to claim items with depreciation so it took my new laptop as a lump sum.
I also wasn’t able to categorise my income, which meant I was unable to separate my salary from the freelance income I haven’t paid tax on yet.
With what I could input, I received a return estimate of $2,297. Significantly different from the chatbot result. The app does connect to the ATO website, so can pre-fill information, but again this is functionality many apps have.
“AI can produce a basic list of common deductions for each profession/occupation to use as a checklist but it cannot get down into the fine detail of an individual’s tax return and tell you definitively what each individual can actually claim. Only a human can do that!” warns Mark.
“Nobody should be relying on AI to prepare their tax returns because there will almost certainly be mistakes in the results. You should instead use a professional (human) tax adviser to prepare your returns. They might be a little more expensive than AI but the fee is tax deductible and tends to repay itself many times over in additional (legitimate) deductions found.”
In my case particularly, I suspect if I had submitted my return, the ATO would have issues with some of the deductions I was being told I could claim – yikes!
“The more information you have about your tax, the better you can budget. When you're putting together your tax plan, get advice from an expert accountant who specialises in tax. Doing your research will ensure you can maximise your tax refund, so ask your agent about deductible expenses and get clarity around what you can and can't claim. Often, they'll be aware of deductions you're not.” – Mark Chapman
Bottom line
In the future, AI may become intelligent enough that we can rely on it to do important tasks like our tax return. But until then, it isn’t worth the risk.
The chatbots I tried were helpful in gathering information, but I still had to check the source to ensure it was correct. The app would be a helpful way to track your spending and deductions, but couldn’t be trusted to input the information without review.
According to Mark, here are some of the main mistakes H&R Block sees on people’s tax returns:
claiming incorrect deductions or missing deductions
embellishing deductions
relying on pre-filled ATO data
missing the basics like updating your address or bank account information.
All of these are mistakes I could easily have made throughout this process. And unfortunately, there can be big penalties.
“If your deduction claims are found to be incorrect, you will be required to repay the tax avoided, plus pay interest. If the ATO believes that you have acted carelessly, a penalty between 25% and 95% of the tax avoided may also be charged,” says Mark.
At the end of the day, if you’re looking for help with your tax return, an expert can save you a lot more heartache than AI can.
Go deeper:
Do you know what the tax implications are for gifting children?
What are the tax implications of inheriting property after a death?
Financial Disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
