The founder of Australia's oldest micro-nation, 500 kilometres north of Perth, has announced he will abdicate as reigning monarch, handing over sovereignty to his youngest son.

Following a stoush with the State Government over wheat production quotas, through a series of legal manoeuvres Leonard Casely decided to secede from Australia in 1970, and form the Principality of Hutt River.

Hutt River claims to be an independent sovereign state and has existed for 45 years, although the Australian Government does not legally recognise it.

Now at 91, and suffering from the effects of emphysema, Prince Leonard has nominated his youngest son Graeme to take over the sovereign reins.

"It certainly would be nice to be able to continue, but again, you've got to be able to realise that we've all got our own period of life," Prince Leonard said.

"I'm very happy to be handing it over to Prince Graeme, because I know he's very able and capable."

Prince Graeme, who holds a number of titles, including minister of state and education and grand master of the order of wisdom and learning, has been working full-time at the principality for three years.

The qualified teacher said he was "quietly nervous and excited" to take on the role.

Prince Graeme has six siblings, including three brothers.

A crown committee made up of Prince Leonard's three daughters approved a nomination from their father to hand over to Prince Graeme.

Prince Leonard has previously alluded to his intention to retire.

Hutt River Principality vs the ATO

The principality has long been pursued by the Australian Taxation Office.

In 1977, following repeated demands for payments from the ATO, the province declared war on Australia.

It withdrew several days later and according to Prince Leonard, has long been treated by the ATO as a non-resident of Australia, which does not pay taxes but is believed to give annual "gifts" to the local shire.

In its latest approach, the ATO served a writ to the family and is attempting to recoup more than $2.65 million in income tax, penalties and interest for unpaid tax between 2006 and 2013.

A spokeswoman for the ATO would not comment on the specifics of the case but said the writ, which was issued in December 2016, was active for 12 months.

Prince Leonard said the move by the ATO was a "political stunt" and he owed nothing.

Prince Graeme is keen to mend ties.

"I will be trying to bring about a more harmonious relationship with our closest neighbour, Australia, and the West Australian Government," he said.

"I don't know how that's going to happen, but I'm certainly going to put my best foot forward and try and bring about more harmonious situation so that it's beneficial for all.

"We're not here as a threat."

Prince Leonard is 91 and handed over the reins due to ill health. ( ABC News: Sarah Taillier )

Prince Leonard, a self-described mathematician and physicist, is also expected to release two papers on his science research.

He has already privately published a number of research papers and books and intends to further develop an educational shrine that he dedicated to his wife, Princess Shirley, who died in 2013.

Reflecting on more than four decades in the role, Prince Leonard said the position had been both rewarding and difficult.

"It has been a very interesting intellectual challenge," he said.

Prince Leonard will formally abdicate his sovereignty at a ceremony in February.

The principality, based near Northampton, attracts tourists from around the globe, who make the pilgrimage to have their passports stamped and purchase the local currency, the Hutt River dollar.