Residents on Australia's tiny Norfolk Island will lose their parliament and have to pay income tax under new government proposals.
The changes would also give the 1,800 islanders access to health and welfare payments for the first time.
The island - settled by the British six weeks after the First Fleet arrived in Sydney in 1788 - has struggled financially for years.
The opposition Labor Party is expected to support the proposals.
Halfway between New Caledonia and New Zealand, Norfolk Island is one of Australia's most geographically isolated and oldest territories.
The island is a popular tourism spot for Australians and New Zealanders but has a troubled history with the mainland.
In 1856, the descendants of Tahitians and the HMS Bounty mutineers resettled there from the Pitcairn Islands. Many of today's residents are direct descendants of the mutineers and have fiercely maintained their independence.
Under the proposed legislation, islanders would be required to pay taxes from 2016, including all personal and business taxes. They would not have to pay the 10% Goods and Services tax applied on the mainland.
Residents would also be entitled to access social security and health care payments, which they are currently denied.
The legislation to overhaul the territory's administration and finances would come before the federal parliament next week, said Assistant Minister for Infrastructure and Rural Development Jamie Briggs.
Mr Briggs said that under the current system the island was "simply not sustainable".
"They don't have the capacity to deliver the services," he told a press conference on Thursday.
"Asking a community of around 1,800 people to deliver federal functions such as immigration, quarantine and customs, social services and taxation, and state and local government services, is neither appropriate nor sustainable," he said.
"The reality is, infrastructure on Norfolk Island is run down, the health system not up to standard and many laws are out of date with all other Australian jurisdictions."
The island's economic situation has been the subject of a Royal Commission, 12 parliamentary enquiries and 20 commissioned expert reports, all of which recommended reforms.
Consultations with Norfolk Island residents revealed overwhelming support for reform, Mr Briggs said.
Norfolk Island is an external Australian territory in the Pacific Ocean about 1,600km north-east of Sydney.
The island has been a part of the Commonwealth of Australia since 1914, when it was accepted as an Australian territory under section 122 of the Constitution.
At the 2011 census, Australian citizens made up 80% of the population; 13% held New Zealand citizenship.
Pitcairn Islanders settled on Norfolk Island in 1856 and 38% of today's population are descended from them.
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