AI tools are popping up in nearly every part of business right now. From customer service chatbots to real-time analytics, automation is no longer just for the big guys. Small businesses across Australia are throwing their hats into the AI ring, and payroll and tax advice are high on the priority list.
According to a 2024 CPA Australia report, only 22% of small businesses in Australia said they were using AI in their operations, and just a fraction of that for payroll or tax.
But here’s the thing: While AI can be a time-saver, trusting it with payroll and tax compliance can also open you up to risks. That’s why I’m writing this. I want to break down the smartest way to use AI for ATO compliance without risking your business.
How is AI transforming payroll and tax administration?
Instead of spending hours double-checking award rates, PAYG withholding, or super calculations, AI makes routine payroll jobs simple, fast, and consistent. The result? Fewer surprises at BAS time, less back-and-forth with the ATO, and more time to focus on actual business growth.
Payroll errors cost Australian businesses. A 2022 Fair Work Ombudsman report revealed underpaid wages totalling over $530 million across sectors, and many of those were accidental. AI-driven automation picks up patterns that humans might overlook. Misclassification, missed updates to award rates, or dodgy data entry are picked up way faster.
There’s even potential for AI to sniff out irregularities that could signal fraudulent activity. Imagine detecting ghost employees or repeated rounding issues in leave or overtime. That’s peace of mind, without adding to your workload.
Why AI is so appealing to small businesses for payroll and tax
Keeping up with payroll compliance and tax rules can feel like a full-time job. If you’re running a café, managing a tradie team, or juggling multiple clients as an accountant, you’re probably wondering if AI could just do it for you. The short answer is yes… kind of. There’s a reason small businesses are drawn to AI for payroll and tax tasks.
Many AI tools are now built to answer GST questions, calculate super based on awards, and guide users through EOFY prep. No waiting on hold. No back-and-forth emails.
AI is taking down the barriers to entry for payroll and tax compliance. You don’t need to be fluent in accounting. You don’t have to chase your accountant for updates constantly. It’s giving small business owners control, and that feels good
Can AI actually help business owners with ATO compliance?
Here’s the appealing bit: AI-powered systems are often marketed as all-in-one compliance tools. For someone running a busy retail shop, managing a team of casuals, or freelancing across multiple ABNs, that’s a big drawcard.
Still, no tech is magic. The next part digs into what AI sometimes gets wrong and why relying on it exclusively can lead to trouble. If you’re asking, “Should businesses use AI for payroll and tax advice?” the answer depends on how you manage the mix between automation and oversight.
What are the risks of relying solely on AI for payroll and tax advice?
AI tools promise speed and automation, and getting drawn into the convenience is easy. But when it comes to payroll and tax, going all-in on AI without human oversight can carry serious risks. Australian tax and payroll rules aren’t just tricky. They change often and are loaded with context that even the smartest algorithms can miss.
I’ve spoken with small business owners caught off guard by avoidable errors, all because their tech didn’t see what a seasoned accountant or payroll expert would.
1. AI can struggle to interpret Australian tax law
AI isn’t a tax agent. It doesn’t get the real-world context of Australian tax rules, and that’s a problem when updates roll through all the time. AI models might also be trained on older datasets or miss subtle updates in legislation. They might not distinguish between state-based differences or sector-specific compliance obligations.
As an accountant or small business owner, you’ve probably seen how even a simple thing, like incorrectly reporting allowances, can trigger ATO alerts. That brings us to risk #2.
2. The ATO uses AI too—and it’s watching
The ATO isn’t just setting rules. It’s using AI itself to detect when businesses don’t follow them. If AI does your payroll or tax incorrectly, your business is still responsible. That means audits, penalties and possibly even reputational damage if errors look like fraud. I’ve seen businesses have to dig through months of payroll records to defend themselves after using dodgy tools that missed superannuation updates.
There’s also the extra burden for accountants. Many end up cleaning up clients’ errors after they’ve trusted AI apps that aren’t ATO-compliant. That’s time better spent offering strategic advice, not fixing cleanup jobs.
3. Concerns about data privacy and security
A lot of AI tools run overseas or through third-party platforms. That means your employee information, tax file numbers, and bank details could be stored who-knows-where. Small businesses can’t afford a data breach, especially when personal and financial details are on the line.
When you’re using AI to help you, you don’t just want the smartest algorithm. You want the most secure one for your business.
What do small business owners and accountants really think about using AI for payroll and tax advice?
In real conversations with Payroller users and in online forums, I see the same themes coming up:
- “Whenever I’ve tried to utilise AI tools like ChatGPT for assistance with accounting or to locate pertinent tax regulations, the results have ranged from somewhat inaccurate to outright nonsensical.” Owners love the efficiency but don’t fully trust AI with legal compliance.
- “I don’t know enough to trust it with my BAS lodgements.” There’s a knowledge gap. Many worry they’ll get something wrong without a qualified accountant checking.
- “These tasks are squarely within the capabilities of AI agents, and it’s only a matter of time until accounting startups build the necessary integrations.” AI works well for cutting down the cost and time spent on repetitive tasks. Should accountants start widening their offered services to accommodate these new needs?
- “I use AI tools to figure out what I need to ask my accountant.” Some treat AI as an assistant that helps frame better questions. Smart move.
So, should a business use AI for payroll and tax advice? Based on what I’ve seen and heard, use AI to become more efficient, not to fly solo.
What does the ATO say about AI and compliance?
Australia is building a solid framework around how AI is used in business, especially in legal and financial compliance areas. Check out their AI transparency statement. They’re upfront that AI supports some functions, but final decisions and critical compliance remain firmly in human hands.
What is the Australian government doing to regulate AI?
The Department of Industry, Science and Resources has outlined requirements for transparency and explainability. This means businesses using AI tools must be able to explain how decisions are made and ensure those tools don’t breach fairness or safety standards.
And it’s not just about theory. Tools powered by AI need proper safeguards. These include things like:
- Clear documentation of how the AI system makes suggestions or calculations
- Human verification processes before anything is submitted to the ATO
- Flags or alerts when AI can’t assess a unique scenario
Basically, you can’t just plug in an AI tool, sit back, and assume you’re sorted. The government expects businesses to stay in control and informed.
If the ATO isn’t handing everything over to automation, should we?
Just like you wouldn’t rely on auto-correct to send your most important email, letting AI make payroll or tax decisions without review is risky. The ATO holds you accountable for the accuracy of submissions, whether they’re prepared by hand, through software, or by an AI assistant.
Learn more about it here.
Can AI-generated advice replace your accountant?
Nope, and that’s the honest truth. AI can help crunch numbers quickly and flag potential errors, which makes it a dream for things like wage calculations, payroll summaries, and super contribution tracking.
But when it comes to actual tax advice, like interpreting fringe benefit tax implications or award entitlements, it’s not reliable enough to act without expert review.
Real work with AI assistance is the real game changer
AI tools can help short-staffed businesses move faster, cut through admin, and make fewer errors. But when you’re talking about employee wages, ATO reporting, and getting your PAYG and super sorted, there’s just no substitute for software that’s built for real-world compliance and backed by local support.
Having AI tech in your toolkit is great, but only when it’s aligned with Australian laws and ATO compliance.
