Update: The Australian Classification Board has sent through a statement regarding The Medium's banning in Australia. It doesn't shine light on the reasons for the ban on a content level, but it does confirm that Bloober Team's IARC submission breaks an unspecified rule. The Australian Classification Board itself has not received an application for the game.
Here's the full statement:
"On 6 July 2020, the IARC (International Age Rating Coalition) Tool classified, The Medium, RC (Refused Classification). The Tool has generated a Refused Classification decision in accordance with Australia’s classification criteria from input (questionnaire responses) submitted by the developer. As of 4 November 2020, the Classification Board has not received an application for a game by the title The Medium. If the developer decides to alter the game, they can use the Tool to classify a modified version of the game and a new classification will be generated."
In other words, the only recourse Bloober Team has is to address the offending material (ie, patch it out for Australian audiences) before submitting it for re-classification.
The Medium is the next psychological horror game from Bloober Team, the studio responsible for Layers of Fear, Observer, and the recent Blair Witch adaptation. But it may not release in Australia: a ruling on the Classification Board website (first spotted by Kotaku) indicates it has been refused classification.
'Refused classification' means the game is effectively banned in Australia, due to breaking some (yet to be specified) rule. Most recently, it emerged that Wasteland 3 was almost banned in Australia for breaking a clause related to a supposedly indecent depiction of drug use.
As for why The Medium has been refused classification: we don't know. I've reached out to the board for the reason, but since it was rated by the IARC (International Age Rating Coalition) rather than the board itself, the issue could be as simple as a data entry error. IARC submissions are done via questionnaire "programmed with unique algorithms that assign ratings for each of the participating rating authorities which reflect their own distinct local standards about the age appropriateness of various content featured in the app."
Also, it's not uncommon for a refused classification ruling to come good. Some studios modify their games to conform to the laws, whether globally or regionally. Whatever the case, you can still pre-order The Medium on Steam at the time of writing. The game is scheduled to release on December 10.
I've reached out to the Classification Board for the reason behind the decision, and will update this story when I hear back.