Engagement letter AI clause for Australian law and tax firms

People searching for an engagement letter AI clause usually want words they can paste. I’ll give you those, but the wording only holds up if it matches what your staff do with client files. That part changes from one practice to the next.

Law and accounting firms sit under different rules here, and the clause has to speak to the right one. What else AI changes for a legal practice is on our page for law firms.

Do lawyers have to tell clients they use AI in Australia?

Not because any rule says “AI”. Rule 9.1 of the Australian Solicitors’ Conduct Rules keeps client confidences inside the practice, its barristers and anyone otherwise engaged to deliver the legal service. Rule 9.2.1 then lets a solicitor disclose what the client expressly or impliedly authorises.

The Victorian Legal Services Board + Commissioner illustrates implied authority with a conveyance: the other side, the banks and the government agencies obviously need the details. Its advice for doubtful cases is short. If you aren’t sure you have consent, get express authority.

Implied authority stretched over a chatbot vendor is a reading I wouldn’t put my name to. Run your own matter type through the questions below.

The regulators’ joint statement adds two things for lawyers to consider. One is recording and telling clients when and how AI was used, and how it shows in costs if the client asks. The other is an AI policy clients can see on request.

The Law Society of NSW guide, updated January 2026, is blunter on page 9: make sure the client “is aware and approves”.

The AI checklist from the QLS and six other law societies goes further. Its sample wording in Annexure B tells the client the firm’s own AI may be trained on the matter, which suits only a practice running a private model.

Tax agents and APES 305: what goes in an accountant’s letter of engagement

For tax and BAS agents, the rule predates chatbots. Code item 6 bars disclosing information about a client’s affairs to a third party without the client’s permission, unless the law requires it. A third party is anyone except the client and the practitioner.

TPB(GS) 55/2026, issued 22 July 2026, applies that to AI. Permission comes before client information is divulged, and divulging “can include” entry into AI tools, depending on how they’re configured and used. The TPB then recommends telling the client four things.

Those four points are the best drafting brief in this whole area. Where a TFN is involved, the TPB adds the 2015 TFN Rule and says get your own advice, which is why taking the TFN out before anything is pasted is the simpler path.

APES 305 defines cloud computing as resources a third party provides over the internet, software included. A paid AI subscription looks like it fits. “Where stored” also means the provider’s history, and deleting ChatGPT history removes less than people assume.

TPB(GS) 34/2019 says a letter of engagement isn’t a Code requirement, but the Board strongly encourages one and weighs it when looking at a breach. Retention differs by account type, as OpenAI’s handling of pasted data shows, so fill in “where stored” per tool, not per brand.

Sample AI clause wording for a costs agreement or tax letter

Pick your profession and copy the lines you need. Square brackets are yours to fill or strike. Leave them ugly until someone fills them: a bracket nobody noticed is worse than a blank.

If several partners mark the template up, strip the tracked changes and comments in Word before it goes to a client.

The solicitor version closes with the policy line because the joint statement asks for it. If you don’t have one yet, our AI policy template gives you the sections to write.

The client data paragraph: what goes into the AI tool

The builder above says who and why. This paragraph says what leaves the office, and it’s where most borrowed clauses go wrong. A paragraph promising nothing identifying goes in is only true if someone does the swap every single time.

If your staff can’t say which version holds on a Friday afternoon, choose documents-in-whole and get consent for it. A Word file carries names in places the body text doesn’t show, including comments and headers that a find-and-replace misses.

The swap can also run on a firm’s own servers, and Limina’s container route is one way practices with IT staff do it. Either way, name the place it happens in the clause.

Costs agreement and costs disclosure: when AI changes the bill

Section 174(1)(a) of the Legal Profession Uniform Law requires the basis of costs and an estimate when instructions are given, or as soon as practicable after. Section 174(1)(b) requires an update after any significant change. Neither mentions AI, but both apply once AI changes the basis or the estimate.

The Law Society of NSW guide gives the example: with time-based billing, if AI helps a practice prepare a contract in half the time, the saving belongs in the bill. A firm that markets AI speed and bills the old hours is inviting a costs dispute.

Keep a record of AI use per matter in your policy, so the bill can be explained later.

The Uniform Law runs in New South Wales, Victoria and Western Australia, and section 170 leaves commercial and government clients outside its costs disclosure rules. Queensland, South Australia, Tasmania, the ACT and the Northern Territory have their own costs disclosure provisions, so check yours before borrowing a section number.

The privacy collection notice: naming the AI provider

If your practice is an APP entity, the client hears about the provider a second time, in the collection notice. APP 5.2 covers the bodies you usually disclose that kind of information to, whether it’s likely to go overseas and, where practicable, which countries.

The OAIC’s guidance on commercially available AI products says that if the developer has access to personal information processed through the tool, that is a disclosure for the APP 5 notice. A tool that keeps entered information inside the organisation is treated as a use instead.

Skip the vague “trusted third parties” line. It names nobody and tells the client nothing they could object to. Whether a given tool is allowed at all is a separate question, covered in which AI tools the Privacy Act lets you use.

Many small practices sit under the $3 million small business exemption. The seven societies flag that from July 2026 it may not cover law practices supplying designated services under the AML/CTF regime. Those services start with an identity check, and clients can send a watermarked passport copy for it.

Councils face the same question under state privacy law, as our page for councils explains.

Firms whose own software calls a model through an API can swap client details on their server through a gateway before the provider sees them.

Checklist: what an AI clause in an engagement letter must cover

Before the template goes out, tick what your draft already says. The list mixes the TPB’s four points, APES 305, rule 9 and the regulators’ openness asks. Anything under eight goes back to whoever drafted it.

Existing clients: a letter of variation when you start using AI

A new template only covers new matters. For ongoing tax clients, the TPB recommends a review, preferably yearly, and would generally expect a new letter when the third-party recipients of client information change, which needs prior consent under Code item 6.

Starting to send client information to an AI provider looks like that change to me. Solicitors have no such list, but an older retainer is unlikely to have authorised anything towards an AI vendor. The fix is the same, as our page for accountants also notes for mixed practices.

My preference is a one-page variation sent with the next bill or update, not buried in an email footer.

The QLS handout is about something else: what clients do with their own chatbots, and the privilege they can lose. I’d still put it in the same envelope.

Keeping the AI clause in your engagement letter true at every desk

A clause is a promise about behaviour. The labels-first version is only honest if the swap happens on every file, including the rushed one at five to five.

That single step is what Nonimo does on a Mac or Windows computer: highlight the text, press one key, and the identifiers it recognises become labels before the assistant sees them.

When the reply comes back, the real details return on the same screen. Your text never reaches us, as our security page explains. For the clause, that means “on this practice’s own computers” describes what happens.

If your letter will carry the labels-first paragraph, Nonimo for Australian practices does the swap at each desk. The human read in that paragraph stays with your staff.

Plans for a whole practice are on the pricing page.

None of this wording replaces a read by whoever answers for your practice’s risk: it was drafted from the regulators’ documents, not from your retainer.

Sources

• Statement on the use of artificial intelligence in Australian legal practice, Law Society of NSW, Legal Practice Board of WA and VLSB+C. Public chatbots and rule 9.1; ss 172 and 173; transparency and AI policies on request.
• VLSB+C, Disclosure where there is express or implied consent. The conveyancing example; get express authority when unsure.
• Law Society of NSW, A solicitor’s guide to responsible use of artificial intelligence, updated January 2026. Time saved in the bill (p 5); rules 4 and 9 (p 6); “aware and approves” (p 9).
• Queensland Law Society and six law societies, AI selection and use checklist, February 2026. Free services (p 4); consent, anonymising and the small business exemption (p 5); Annexure B.
• Queensland Law Society, Template: warning to clients on their use of AI. Privilege and client use of AI, ideally given at retainer.
• Law Council of Australia, Australian Solicitors’ Conduct Rules. Rules 9.1 and 9.2.1.
• Legal Profession Uniform Law (WA). Section 174(1) and (3), disclosure and the client’s understanding.
• Tax Practitioners Board, TPB(GS) 55/2026 The use of Artificial Intelligence and the Code of Professional Conduct. Permission before entry into AI tools; the four points; signed letter or general authority; TFN Rule.
• Tax Practitioners Board, TPB(GS) 34/2019 Letters of engagement. Strongly encouraged, not required; new letter when third-party recipients change; no TPB template.
• APESB, APES 305 Terms of Engagement. Paragraphs 3.6 and 3.7 and the definition of cloud computing.
• OAIC, Guidance on privacy and the use of commercially available AI products. Notices and policies that specify disclosure to AI developers.
• OAIC, Read the Australian Privacy Principles. APP 1.4 and APP 5.2 on usual and overseas recipients.

Accessed 7 November 2026.