I'm seriously thinking about taking my music further to say a University level, most likely a career.

I was wondering (In Australia) what would the standard skill level be for guitar players wanting to study music at uni. Just want to know so I know what I'm working towards in a years time (Y)
i know exactly where to go to if you're in Western Australia because i wanted to for a while and currently about 5 of my friends are..
All of them are studying at a uni level and have been playing at least 5 years each on their instrument and have been studying music as a subject at high school since year 10 at least.

If you live in WA though, WAAPA (West Australian Academy of Performing Arts) is where you'd wanna go. If not in WA then i can't help you with that sorry ):
I live in a small country town in Victoria.
I know where I need to go for music, I just wanted to know the skill level needed, like what they would expect from someone wanting to study music with guitar at uni.
If you're studying guitar you're gonna need to know your guitar theory very well, also be able to play it at quite a good level. I know 2 guys who got into uni studying guitar and they've both been playing for 6-7years as jazz / classical guitarists.
I don't know about Australia... but a lot of reputable music schools in the U.S. require an audition to get in. But it varies in what the school expects from an audition. So you'd need to find out from the school.

To your question: if an audition is required they are trying to gauge your skill level by challenging you. You may need to perform either an original piece, a piece they give you, or a specific etude, or any combination of those. They might test your ear. They might test your knowledge of music theory. You most likely have to sight read at least to some adequate level. They don't expect you to be a pro (you're seeking education after all) but they do expect a certain level of training already under your belt, if it's a good school.

Honestly much depends on your chosen genre and the school itself --- I guess it comes back to contacting them and asking their requirements for admission. Some are more competitive than others, and as such more demanding on their potential new-comers.

best of luck to you. I hope it works out