While it likely won't get to the extreme point of having to remove one's smartwatch to drive, state police plan to classify such devices as potential distractions, in the same league as your mobile phone or GPS, with all the associated fines and penalties.
It can be argued glancing at one's wrist is less complicated than holding (and concentrating) on a phone, but this won't get you very far with police in NSW or Victoria, according to Ben Grubb over at the Sydney Morning Herald.
In statements to the paper, the aforementioned enforcement organisations made it clear that while driving, using your watch in the same capacity as your mobile will almost certainly get you in trouble:
"Driving is a complex task that requires full concentration and it's essential that drivers minimise the risk of distraction in their vehicle," Victoria Police said in a statement to Fairfax Media. "Anyone caught using mobile phones, GPS or other electronic devices while driving could face penalties."
The article goes on to say that Victorian drivers should be right to keep their watches on while at the wheel, though interestingly, NSW Police didn't immediately answer the question, other than to say that "it is important that drivers are not distracted by any device".
Maybe if you just whack it around your neck instead? Or the gear-shift? I suppose that defeats the purpose.