What is meant by Federation?
Federalism is a political system which unites separate states or other polities under a united entity, but which also allows each of the components to maintain their own integrity. Some form of power-sharing is required when establishing a Federal system. This is done by way of a federal constitution.
In Australia, what is called the Commonwealth — or federal — Constitution was drafted by representatives from each of the Australian colonies and agreed-upon by the people within those colonies.
Under the Australian federal system, the Australian colonies became the Australian States with each state maintaining its own parliament, Governor, laws and police force but under the Federal Constitution it was also agreed that the Commonwealth government would be responsible for matters concerning the whole nation, particularly defence and foreign affairs. Whilst both the Commonwealth and the State governments were able to impose separate taxation levies, the States surrendered their taxing powers during the Second World War. The Commonwealth government now is the only government taxing Australians although the States impose other levies.