Greywater contains a range of contaminants that could cause health problems and damage the environment if it is distributed without adequate care and attention. Contaminants in your greywater may be either chemical (from detergents and cleaners) or microbial (such as bacteria from your skin and clothes). Microbes can affect human health and chemical contaminants can damage the environment.
The NSW Heath website has links to research into laundry products and greywater.
Under Section 75A Local Government (General) Regulation 2005, greywater diversion systems no longer need local council approval if certain criteria are met. However, they must comply with the NSW Code of Practice for Plumbing and Drainage to ensure that the health of the community and the environment is protected.
There are also a number of simple things you should and should not do when using your greywater system. For a comprehensive description of these, please refer to the NSW Guidelines for greywater reuse issued by the former Department of Energy, Utilities and Sustainability.