Details are still coming but Phuketwan understands the arrest took place at Phuket Graceland Resort and Spa when the man got into an altercation with a genuine Patong taxi driver.
The row began when the taxi driver, a woman, accused the Australian of being a time-share tout, say police.
Patong police arrested the man and handcuffed him in the middle of the road. A handgun and ammunition were found in the man's pickup
The Aussie was driving a bright red Fordwith red new-vehicle plates.
It's understood he had delivered one passenger earlier today then returned to Graceland in search of another customer.
Expats on Phuket have been talking about arranging their own pickups from Phuket international Airport to avoid the excessive fares charged by local Phuket taxi and tuk-tuk drivers.
It appears the Australian took it one step further and decided to become a taxi driver.
Earlier today, Phuketwan reported a case where an Australian tourist became embroiled in a confrontation with local taxi drivers when a friend - an expat on Phuket - dropped by to pick him up.
The case was eventually resolved peacefully, but problems continue with Phuket taxi drivers considered to be a law unto themselves.
Monday was the final day for Australia's honorary consul on Phuket, Larry Cunningham, who would usually be called in to protect the rights of the arrested Australian.
A replacement for Mr Cunningham is not likely to be appointed this year.