Police were called to Corringle Lane in Rugby, about 84 kilometres north of Yass, just before 3pm on Sunday following reports a car had hit a tree. The town had a population of 83 at the last census.
Officers arriving at the scene, described as an unpaved dirt track, found a Chrysler station wagon that had crashed into a tree. The driver, believed to be aged 45 but not yet formally identified, appeared to be unconscious in the front seat.
According to police media, officers approached the man and attempted to render aid. The man then allegedly aimed a rifle at the officers and was shot by police.
Officers immediately commenced CPR on the driver, but he died at the scene.
A crime scene has been established and a critical incident team from the State Crime Command will investigate the circumstances of the shooting. Such investigations are standard procedure for police-involved deaths in New South Wales.