Staff use of ChatGPT and Copilot, what may be pasted into a prompt, and whether a paid plan is 'safe' dominate Australian small-business questions. Transparency and decision-making obligations are asked about less often but carry the December 2026 deadline.
What's changing
When the underlying framework last moved and what is scheduled next. Each entry links to the official source. Separate from when we last reviewed this guide (2026-10-08).
- 10 December 2026 Scheduled
APP 1.7–1.9 automated decision-making transparency obligation commences: privacy policies must disclose AI/ADM use that significantly affects individuals.
Introduced by the Privacy and Other Legislation Amendment Act 2024 (24 months after Royal Assent). Directly relevant to any AI tool that scores, ranks, approves or flags people.
OAIC — APP 1 guidelines, Chapter 1 ↗ - 30 September 2026 Guidance
OAIC published its final APP 1.7–1.9 guidance: updated APP 1 Guidelines, a fact sheet, a flowchart and a supplementary fact sheet for agencies.
This is the wording privacy policies will be measured against from 10 December 2026.
OAIC — New resources on transparency for use of AI and automated decision-making ↗ - 21 October 2024 Guidance
OAIC published its guidance on privacy and the use of commercially available AI products.
The guidance that anchors this policy: Privacy Act applies to all AI use involving personal information; do not enter personal information into public generative AI tools; due diligence, human verification and privacy-policy transparency.
OAIC — Guidance on privacy and the use of commercially available AI products ↗ - 24 January 2024 Guidance
ASD's ACSC published 'Engaging with Artificial Intelligence' — guidance for organisations using AI systems securely.
Joint international guidance; pairs the Essential Eight with knowing the system's constraints, training staff, understanding privacy obligations and secure-by-design supply chains.
ASD — New guidance for engaging with artificial intelligence ↗
What is a responsible AI use policy, and does my business actually need one?
A responsible AI use policy is the staff-facing rule set for generative and other AI tools: which tools are approved, what may and may not be entered, how outputs are checked, and what to do when something goes wrong. It is not an AI governance framework (that is a board-level document about roles, risk assessment and approval) and not a technical control programme. The OAIC's position is that the Privacy Act applies to every use of AI involving personal information, and it recommends policies, procedures, training, monitoring and human oversight for organisations using commercial AI products. ASD's Information Security Manual calls for a general-purpose AI usage policy because such tools create security risks, and ASD's own 'Engaging with Artificial Intelligence' guidance (January 2024) is aimed at organisations using AI rather than building it. Commercially, a written responsible AI use policy is a reported Gold-tier control under SMB1001 and a standard line in supplier questionnaires and cyber-insurance proposals. If anyone in the business uses an AI assistant for work — and most do — you need one.
- sole trader or very small team — Keep the approved-tool list to the one or two products you actually use and apply the same no-personal-information rule to yourself.
- business with employees, contractors or volunteers — One policy for everyone who can touch company information, including contractors on their own laptops.
- organisation using the ASD Information Security Manual — The ISM expressly calls for a general-purpose AI usage policy — this document is that policy.
- SMB1001 Gold candidate — A responsible AI use policy is a reported Gold control; from the 2027 edition licensed holders report an AI governance framework at Platinum as well.
Purpose and scope. This policy sets the rules for using artificial intelligence tools — including generative AI assistants, AI features inside approved software, and AI agents — in the course of work for [organisation name]. It applies to every employee, contractor, volunteer and other person who uses the organisation's systems, accounts, devices or information, on any device, including personal devices used for work. It exists to protect customer, staff and business information, to meet the organisation's privacy and security obligations, and to make sure a person — not a tool — remains accountable for every decision and every piece of work the organisation relies on.
A model clause — adapt the bracketed decisions to your organisation before you use it.
Which AI tools may staff use — and what is the AI Register?
Approval belongs to a named product on a named plan, in a named tenant and region, under the contract and configuration the organisation has actually checked — not to a brand. The reason is that the same company sells consumer and business products with different data terms: OpenAI, Microsoft, Google and Anthropic each state that their business or enterprise products do not use customer data to train models by default, while consumer products carry different defaults and user choices. The OAIC says businesses should conduct due diligence to ensure a product is suitable for its intended uses and understand what data the system was trained on. The practical mechanism is an AI Register: a short list of approved tools with the plan, who approved it, the date the data terms were checked, whether training on inputs is off, where data is stored and retained, and which uses are in scope. A tool that is not on the register is not approved, however many people already use it.
- business with employees, contractors or volunteers — Publish the register where staff can see it; an approved list nobody can find is treated as no list.
- ISO 27001 certified or preparing — The AI Register doubles as the asset-inventory evidence (A.5.9) and supplier record (A.5.19) for AI services.
Approved tools and the AI Register. Only AI tools, plans and features recorded as Approved in the organisation's AI Register may be used for work. Approval attaches to a specific product, plan, tenant, region and configuration — not to a brand or a company. The AI Register records, for each approved tool: the plan and account type, the business owner, the approver and approval date, whether customer content is used to train the provider's models, data location, retention and deletion settings, connectors and plug-ins permitted, the uses that are in scope, and the date the provider's terms were last verified. Requests to add a tool go to [role] and are not approved by paying for a subscription.
A model clause — adapt the bracketed decisions to your organisation before you use it.
What must never go into an AI tool?
Three categories are off-limits by default. Personal information about customers, staff or anyone else — the OAIC recommends that organisations do not enter personal information, and particularly sensitive information, into publicly available generative AI tools, and the Privacy Act applies regardless of the tool. Credentials, keys and anything that unlocks a system. And confidential or restricted material: commercial-in-confidence information, information held under contract or a non-disclosure agreement, and, for regulated firms, anything that could be legally privileged — the solicitors' professional statement says confidential, sensitive or privileged client information cannot safely be entered into public AI tools. The default is a prohibition with an exception path: a specific use of a specific category in an approved tool, documented in the AI Register, with the controls that make it acceptable (training off, retention set, access restricted) confirmed rather than assumed.
- regulated or professional-services firm — Add privilege, client-restricted and AML/CTF information to the list, and route approvals through the supervising professional — see the AI and client data guide.
- sole trader or very small team — The simplest compliant habit: never paste a customer's details into a chat window, approved tool or not.
Prohibited inputs. Unless a specific exception is recorded in the AI Register, the following must not be entered into any AI tool, approved or otherwise: personal information about customers, staff, suppliers or any other individual, including names combined with contact, financial, health, identity or employment details; passwords, access keys, tokens, licence keys or security configurations; commercial-in-confidence information, information received under a non-disclosure or confidentiality obligation, and unpublished financial results; and any material that is or may be subject to legal professional privilege. 'Approved tool' does not mean 'approved for this information' — the exception must name both.
A model clause — adapt the bracketed decisions to your organisation before you use it.
How do we de-identify information before using AI on it?
Removing names is not de-identification. The OAIC's position is that appropriately de-identified information carries no reasonable likelihood of re-identification in the context in which it will be used, and that robust de-identification generally requires more than removing names and addresses — it can require removing, obscuring, aggregating or altering details. For everyday AI use that means: strip direct identifiers, but also distinctive facts, dates, locations, job titles and free-text details that would let a reader work out who is meant; use placeholders rather than real values; and keep the key to any placeholders outside the AI tool. Treat the result as personal information still if an individual could reasonably be identified, directly or by combining it with other information the reader has. De-identification for Privacy Act purposes also does not remove a contractual confidentiality duty, so a de-identified client document is still confidential.
- business with employees, contractors or volunteers — Give staff a two-line placeholder convention ([Customer A], [Date 1]) and a rule that the mapping never leaves the organisation's systems.
De-identification before use. Where a task needs real-world material, the user must first remove or replace direct identifiers (names, addresses, contact details, account and identity numbers) and indirect identifiers (dates of birth, locations, job titles, distinctive events and free-text detail) that could reasonably identify a person, and must keep any key linking placeholders to real people outside the AI tool. Removing names alone is not de-identification. Material remains personal information, and remains confidential, wherever an individual or client could still be reasonably identified from it or by combining it with other information.
A model clause — adapt the bracketed decisions to your organisation before you use it.
Who checks the output — and what changes on 10 December 2026?
A person is accountable for every output the organisation relies on. The OAIC notes that AI systems are known to produce inaccurate or false results and says a human user should be responsible for verifying the accuracy of any personal information obtained through AI; it also treats inferred, incorrect or artificially generated information as personal information where it is about an identifiable person. Separately, from 10 December 2026 APP entities must include additional information in their privacy policy if they arrange for a computer program to use personal information to make — or do something substantially and directly related to making — decisions that could reasonably be expected to significantly affect an individual's rights or interests (APP 1.7–1.9). The OAIC published its final guidance, a fact sheet and a flowchart on 30 September 2026. For an SME the practical test is: does any AI tool score, rank, approve, price, shortlist or flag people? If so, a human must review the decision and the privacy policy must describe the use by December.
- business that screens, scores or ranks people — Recruitment filters, credit or pricing tools and complaint triage are the SME uses most likely to fall inside APP 1.7 — map them before December.
- ISO 27001 certified or preparing — Document the human-review step as a control; auditors increasingly ask for it.
Human accountability and decisions about people. AI output is a draft, not a decision. A named person must check accuracy, sources, completeness and suitability before any AI-assisted work is relied on, sent to a customer or used in a decision. No AI tool may make or substantially determine a decision that significantly affects a person's rights or interests — including hiring, credit, pricing, eligibility, performance or complaints — without documented human review. Any such use must be recorded in the AI Register and reflected in the organisation's privacy policy as required from 10 December 2026.
A model clause — adapt the bracketed decisions to your organisation before you use it.
Personal accounts, free tiers, browser extensions — how do we stop shadow AI?
Most unsanctioned AI use is not malicious; it is a personal ChatGPT login, a free tier, or a browser extension that summarises pages — and each sends company information to a service on consumer terms the organisation never reviewed. The OAIC's workplace blog notes that on-premises or private-cloud AI may carry fewer privacy risks where it does not cause a secondary disclosure, which is the same reason a consumer tool carries more. A written prohibition without technical controls, monitoring, approved alternatives and training is unlikely to be sufficient; ASD's guidance for organisations using AI pairs policy with knowing the constraints of the system and training staff to use it securely. The policy therefore does three things: forbids personal and free-tier accounts for work, requires work AI to run under organisation-managed logins, and gives people an approved tool so they have no reason to go around the rule. The technical side (DNS or proxy visibility, extension controls, DLP) is a separate control programme.
- business with employees, contractors or volunteers — Pair the rule with an approved assistant on a business plan — prohibition without an alternative drives use underground.
- SMB1001 Platinum or Diamond candidate — Licensed holders report that the 2027 edition adds an AI governance framework at Platinum and control of unauthorised AI use at Diamond; this clause is the policy layer those build on.
Personal and unapproved accounts. Work must not be performed through personal, free-tier, trial or otherwise unapproved AI accounts, browser extensions, chat plug-ins or 'AI features' switched on inside tools the organisation has not approved for that purpose. AI tools used for work must be accessed through organisation-managed accounts and sign-in. Staff who need a capability that no approved tool provides must request it through [role] rather than use an unapproved service; the organisation will maintain at least one approved general-purpose assistant so that a compliant option always exists.
A model clause — adapt the bracketed decisions to your organisation before you use it.
What do we tell customers and staff about our AI use?
Transparency is both a privacy obligation and the cheapest trust measure available. The OAIC says organisations should update their privacy policies and notifications with clear and transparent information about their use of AI, and APP 6 means personal information collected for one purpose generally cannot be fed into an AI tool for an unrelated purpose without consent or a reasonable-expectation basis. From 10 December 2026 the APP 1.7–1.9 disclosure adds a mandatory privacy-policy statement wherever AI makes or substantially informs significant decisions about people. For staff, transparency means telling them what AI use is monitored and how, which also keeps the organisation on the right side of workplace-surveillance law. The practical minimum is a sentence in the privacy policy, a sentence in customer-facing terms where AI drafts or decides anything, and a line in the staff acceptable-use acknowledgement.
- business with a website privacy policy — The privacy policy is where the December 2026 disclosure lands — update it alongside this policy, not after.
Transparency. The organisation's privacy policy and relevant customer notices must describe how AI tools are used with personal information, including any use that makes or substantially informs decisions significantly affecting individuals. Personal information collected for one purpose must not be used in an AI tool for a different purpose unless the individual has consented or would reasonably expect it. Staff will be told which AI use is logged or monitored, for what purpose and by whom, before monitoring begins.
A model clause — adapt the bracketed decisions to your organisation before you use it.
Something went into an AI tool that shouldn't have — what now?
Treat it as a security incident first and a possible data breach second. APP 11 requires reasonable steps to protect personal information from unauthorised disclosure, and the Notifiable Data Breaches scheme is engaged where personal information has been disclosed without authorisation and a reasonable person would conclude serious harm is likely. Pasting a customer list into a consumer chatbot can meet that definition, so the response runs through the organisation's data breach response plan: report immediately, record what was entered and where, use the provider's deletion or conversation-removal controls and capture evidence that they were used, assess harm, and notify where required. Staff who report promptly are not disciplined for an honest mistake; concealment is the breach of policy. The AI Register entry for the tool should record what the provider's retention and deletion terms actually allow, because that determines whether remediation is possible.
- business with employees, contractors or volunteers — Make the no-blame line real: the first time someone is punished for reporting, reporting stops.
Incidents and mistakes. Any entry of prohibited information into an AI tool, any suspected exposure of information through an AI tool, and any AI output that was relied on and later found to be wrong in a way that affected a person must be reported immediately to [role] and handled under the organisation's data breach response plan. The report must record the tool, account, date, what was entered or produced, and whether provider deletion controls were used. Prompt, honest reporting will not result in disciplinary action; concealment, delay or repeat use of a prohibited tool will.
A model clause — adapt the bracketed decisions to your organisation before you use it.
The common gaps and red flags — and when must this policy be reviewed?
The recurring failures: a policy that bans everything (so it is ignored), an approved list that is a brand name rather than a plan, a human-review step nobody performs, no register so no one knows what is in use, and a policy written in 2024 that has not noticed vendor terms, models or the law have moved. ASD says cyber security documentation should be reviewed at least annually and carry a current-as-at date; the OAIC frames AI due diligence as a lifecycle activity with regular review. Review triggers for this policy specifically: a new tool or plan, a change in a provider's data or training terms, a new connector, plug-in or agent, a regulatory change (the December 2026 APP 1.7 commencement is the first), an incident, and any new use of AI in decisions about people.
- SMB1001 Gold candidate — Assessors look for the review date and the register, not the prose.
Review cycle, triggers and red flags. This policy and the AI Register are reviewed at least annually and whenever an AI tool, plan or connector is added or changed, a provider changes its data, training or retention terms, the law or a regulator's guidance changes, an incident occurs, or AI is proposed for a new use involving decisions about people. The following are not accepted as normal practice: approval by brand rather than plan; AI tools in use that are not on the register; human review recorded but not performed; personal information in prompts without a recorded exception; and AI involvement in decisions about people that is not reflected in the privacy policy.
A model clause — adapt the bracketed decisions to your organisation before you use it.
What's my next step?
- Download this template — it's part of the free starter pack.
- Nominate a policy owner and an approver.
- Complete the bracketed decisions and delete anything that doesn't reflect how your business actually operates.
- Compare the wording against your real systems and practices before you sign it.
- Get it approved and set a review date, normally within 12 months.
Common misconceptions
These are things people commonly get wrong — the statement itself is the myth, not the fact.
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A paid or business AI subscription means the tool is approved for any information. likely myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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If the provider says it does not train on our data, nothing we enter can be disclosed. confirmed myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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Removing names before pasting a document into an AI tool makes it de-identified. confirmed myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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AI-generated or inferred information about a person is not personal information because we did not collect it. confirmed myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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The 10 December 2026 obligation only applies to fully automated decisions with no human involved. confirmed myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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Banning AI tools in a policy is a sufficient control on its own. likely myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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Our AI use is nobody's business — the privacy policy does not need to mention it. confirmed myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
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SMB1001:2027 'adds AI' — in fact a responsible AI use policy has been a reported Gold requirement since the 2026 edition; the 2027 edition reportedly adds governance at Platinum and enforcement at Diamond. confirmed myth
This is a misconception, not the fact — see the guide above and the sources appendix below for what actually applies.
Obligations at a glance
The obligations most relevant to this guide, with the regulator, the trigger and the timeframe. Follow the source links in the appendix for the authoritative wording.
| OBLIGATION | REGULATOR | TRIGGER | TIMEFRAME | PENALTY |
|---|---|---|---|---|
| APP 1.7–1.9 automated decision-making transparency | Office of the Australian Information Commissioner | An APP entity arranges for a computer program to use personal information to make, or do something substantially and directly related to making, a decision that could reasonably be expected to significantly affect an individual's rights or interests. | Privacy policy must contain the required information from 10 December 2026. | Failure engages the OAIC's infringement and compliance notice powers; civil penalties also apply. |
| APP 6 use and disclosure limits | Office of the Australian Information Commissioner | Personal information collected for one purpose is used in an AI tool for another purpose. | Before and during each use; consent or a reasonable-expectations basis must exist for the specific AI use. | |
| APP 11 security of personal information | Office of the Australian Information Commissioner | Personal information is entered into, stored by or produced by an AI tool. | Ongoing; reasonable technical and organisational steps, and destruction or de-identification when no longer needed. | |
| APP 8 cross-border disclosure | Office of the Australian Information Commissioner | An AI provider or sub-processor outside Australia receives a disclosure of personal information. | Reasonable steps before disclosure; section 16C accountability continues while the recipient handles the information. | |
| Notifiable Data Breaches scheme | Office of the Australian Information Commissioner | Personal information is disclosed to an unapproved AI service without authorisation and serious harm to an individual is likely. | Assess expeditiously, within 30 days at most; notify the OAIC and affected individuals as soon as practicable. |
Sources
- OAIC — Guidance on privacy and the use of commercially available AI products primary
- OAIC — New resources on transparency for use of AI and automated decision-making (30 September 2026) primary
- OAIC — Consultation on guidance for transparency in automated decision making primary
- OAIC — APP 1 Open and transparent management of personal information (APP guidelines, Ch 1) primary
- OAIC — APP 11 Security of personal information (APP guidelines, Ch 11) primary
- OAIC — APP 8 Cross-border disclosure of personal information (APP guidelines, Ch 8) primary
- OAIC — GenAI tools in the workplace: balancing protection of personal information and business efficiency primary
- OAIC — Health data privacy trends and challenges (de-identification keynote, 2025) primary
- OAIC — Part 4: Notifiable Data Breach scheme primary
- ASD ISM — Guidelines for personnel security (general-purpose AI usage policy) primary
- ASD ISM — Guidelines for cyber security documentation primary
- ASD — New guidance for engaging with artificial intelligence (24 January 2024) primary
- Enterprise privacy at OpenAI primary
- Enterprise data protection in Microsoft 365 Copilot primary
- Generative AI in Google Workspace privacy and data use primary
- Anthropic — Is commercial product data used for model training? primary
- Law Society of NSW — Statement on the use of artificial intelligence in Australian legal practice primary
- SMB1001:2026 Changes Explained for Perth Businesses (provider summary) primary
- DJC Systems — SMB1001:2027 Changes at Gold and Platinum (6 October 2026) primary
- DSI — 2027 Commercial Use Licence (SMB1001:2027 edition metadata) official
This guide and its templates are a professionally drafted starting point, not legal advice. Your obligations depend on your industry, your contracts and your data. Have a qualified adviser review anything high stakes before you rely on it.