Tax advice and AI confidentiality: what a capital gains memo gives away in ChatGPT or Claude.

A tax advice is the most valuable document an accounting firm produces and the one most tempting to run through ChatGPT or Claude, whether to check a position, improve the drafting or summarise it for the client. It is also the document that carries the whole family: the entities, the beneficiaries, the figures and the firm’s recommendation. This page marks every item in a capital gains advice that AI confidentiality rules protect, and shows how the same advice is researched and drafted on Ermos inside the practice.

The capital gains advice

Prepared before a sale or restructure, usually at partner level, and relied on by the client in deciding whether to proceed.

Memorandum of advice
To: Lena Marchetti, Director, Marchetti Family Holdings Pty Ltd¹ · From: Sarah Lindqvist CA⁹ · 23 October 2026

Re: Proposed sale of 22 Industrial Drive, Brookvale²

Facts. The property was acquired by the Marchetti Family Trust in 2009 for $640,000. An offer of $1,950,000 has been received from Brookvale Logistics Pty Ltd, with exchange proposed for December 2026.³ The trust’s beneficiaries are Giuseppe, Lena and Marco Marchetti and the three grandchildren. Giuseppe is 81 and receives an account-based pension; Marco has carried-forward losses of $38,000 from a previous business.⁴

Issues. Whether the small business CGT concessions in Division 152 are available, given the property has been leased to a connected entity, and whether the active asset test is satisfied for the whole ownership period.⁵

Analysis. The property has been used in the business of Marchetti Dental Pty Ltd, a connected entity, since 2011. On our review of the lease and the financials, the active asset test appears to be satisfied for more than half the ownership period. The maximum net asset value test is the risk: on current valuations the group is close to the $6 million threshold, and the Carrington Avenue residence must be excluded correctly.⁵

Recommendation. Distribute the gain to Marco to absorb his losses and to the grandchildren’s trusts up to the tax-free threshold, apply the 50% active asset reduction, and obtain an independent valuation of the group’s assets before exchange. On these assumptions the tax on the gain falls from approximately $305,000 to approximately $71,000.⁶

This advice relies on the facts above and on the trust deed as varied in 2018. If the ATO reviews the arrangement, the distribution to the grandchildren’s trusts is the element most likely to be examined.⁷

Giuseppe has asked that Marco not be told the size of the gain until the sale is unconditional.⁸

An invented advice. Hover or tap any highlighted item for the analysis; the full list is below.

What leaves the firm

The client

Named, with the entity. The anchor for the whole memo. APES 110 confidentiality guide.

Frontier Models (ChatGPT, Claude)	Transmitted to the provider, generally offshore on personal plans
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The property

A specific address about to be sold. Combined with the offer, it is price-sensitive information about a live transaction. APES 110 confidentiality guide.

Frontier Models (ChatGPT, Claude)	A live transaction transmitted before exchange
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The transaction

Cost, offer, buyer and timing. Confidential to the client and to the buyer, who is not the firm’s client. APES 110 confidentiality guide.

Frontier Models (ChatGPT, Claude)	The buyer’s offer transmitted with the seller’s position
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The whole family

Six beneficiaries, their ages, a pension and a loss history. Personal and financial information about people who did not ask for this advice. Privacy Act guide.

Frontier Models (ChatGPT, Claude)	Six people’s affairs transmitted
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The analysis

The firm’s reasoning on the concessions and where the risk sits. The intellectual work the client is paying for, and the firm’s view of its own weak point. Checking AI output guide.

Frontier Models (ChatGPT, Claude)	Your reasoning transmitted; on consumer tiers it can train future models
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The recommendation and the figures

A distribution strategy and the tax saving it produces. The single most valuable paragraph in the file. TPB Code guide.

Frontier Models (ChatGPT, Claude)	The strategy and the saving transmitted
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The ATO risk assessment

The firm’s own view of which element the regulator would examine. Candid, necessary, and never meant to leave the file. TPB Code guide.

Frontier Models (ChatGPT, Claude)	Your view of the ATO risk now outside the firm
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

A private instruction within the family

That one beneficiary is not to be told the figures. A confidence inside a confidence. APES 110 confidentiality guide.

Frontier Models (ChatGPT, Claude)	A family confidence transmitted
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

The partner

Ties the advice to the practitioner responsible for it under the TPB Code. TPB Code guide.

Frontier Models (ChatGPT, Claude)	Transmitted, and the leak is traceable to you
Ermos Edge	Stays on your instance in Australia; leaves only inside a permitted excerpt, per question, to the named provider
Ermos Dominion	Stays on the unit in your office

What happens in Frontier Models (ChatGPT, Claude)

The whole document is transmitted to the provider’s servers. On personal plans the user cannot choose where it is stored or processed, and for the major providers that has generally meant outside Australia, under that country’s legal process. Some business plans offer storage in Australia, but the provider still receives the content.
On consumer tiers, prompts can be retained and used to train future models.
The provider’s staff and systems can reach the content under the provider’s own policies.
Once sent, the firm no longer controls it. Retention and deletion happen on the provider’s terms.

The same document on Ermos

Ermos Dominion

The document is drafted on a unit in your office, from your own templates and the client file. Every marked item stays on the unit, which keeps working with the internet switched off. Nothing in it is transmitted to an AI provider, so there is no disclosure to analyse: the confidentiality work is the same as for your file server.

Ermos Edge

Your documents, the index and your access boundaries stay on your own instance in an Australian data centre. When a staff member asks for this draft, only their question and the excerpts they are permitted to see go to a named Australian provider, who is contractually barred from keeping the content or training any model on it. Nothing is processed outside Australia.

	Frontier Models (ChatGPT, Claude)	Ermos Edge	Ermos Dominion
Where the document is processed	Provider servers, generally offshore on personal plans	Your instance in an Australian data centre; answers generated in Australia	The unit in your office
Who can read it	Provider staff and systems, under policy	Your staff, within the boundaries you set. The named Australian provider processes only permitted excerpts, under contract, and keeps nothing	Your staff only
Is it kept	On the provider’s terms	Kept on your instance; the provider is barred from retaining it	Stays on the unit
Can it train a model	On consumer tiers, yes	No, by contract	Only your own unit learns from it, on your hardware

Part of AI data leakage in accounting firms. See how this works in practice: Tax research on Ermos.

Common questions

Do ChatGPT and Claude use the information in a capital gains advice memo?

That depends on the account the user is on. As at October 2026, whether a conversation on a personal plan (ChatGPT Free, Plus or Pro; Claude Free, Pro or Max) can be used to train the models depends on a setting each user controls. Business plans (ChatGPT Business and Enterprise, Claude Team and Enterprise) and the developer APIs sit under commercial terms, and OpenAI and Anthropic each say they do not train on that content by default (OpenAI, Anthropic). On either product, the thumbs up and thumbs down buttons can send a whole conversation back for training. The memo is also sent to the AI company to be processed. This memo holds the recommendation, the ATO risk assessment and six beneficiaries' affairs.

Is it safe to paste a capital gains advice memo into ChatGPT or Claude while the sale is still live?

No, and a sale that has not yet closed makes this memo more sensitive than most. The Office of the Australian Information Commissioner (OAIC) recommends in its guidance on commercially available AI products that organisations do not enter personal information, and particularly sensitive information, into publicly available generative AI tools, because of the significant and complex privacy risks. Cutting the family's names would still leave the offer price, the buyer and the exchange date. It would also leave an instruction that one beneficiary is not to be told the size of the gain.

Can ChatGPT or Claude be trusted to draft a capital gains advice memo?

Not without a partner checking every line. Language models write fluent text that can include details the source never contained. They can also produce wrong figures, wrong dates and references that look real but are not. In this memo the Division 152 concession tests and the net asset value test do the most harm if wrong. So do the ownership dates and the tax saving, because the client decides whether to sell on them. The partner should check each one against the trust deed, the lease and the valuations before signing.

How can an accounting practice use AI for a capital gains advice memo without sending it to ChatGPT or Claude?

Ermos is built so the document stays under your control. On the Dominion AI unit it is drafted inside your office and none of it is sent to an AI provider. On Ermos Edge your documents and index stay on your own instance in an Australian data centre, and only the question and the excerpts the user is permitted to see go to a named Australian provider that is contractually barred from keeping them or training any model on them. Ermos drafts the memo from the client file, the lease and the practice's own advice template. The partner checks every figure and the reasoning before signing.

Is using AI to check a tax position a problem under APES 110?

Checking is encouraged; R320.11 requires a decision about whether relying on a technology's output is appropriate for the purpose. The problem is what goes into the tool to get the check. A frontier model needs the facts, and the facts are the client's confidential affairs. On Ermos the research runs over the firm's own precedents and the ATO material you have indexed, inside the practice.

Could the advice be anonymised first?

Partly. The reasoning can be tested on a hypothetical. The recommendation, with its figures, beneficiaries and family dynamics, cannot be anonymised without losing what makes it advice, and that is the part staff paste to improve the drafting.

Does the buyer's name matter?

Yes. Brookvale Logistics is not the firm's client, and the memo now carries its offer and its timing. The firm owes it nothing under APES 110, but the client owes it confidentiality under the sale negotiations, and the firm has just broken that on the client's behalf.

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