My belief was that the system was based on the Lap time of the driver in his car, thus if the car was capable of breaking into the cut of lap time then it was up graded to Div 1, that is what happened to Spike Jones in his SM Special at Oran Park.
Yes, Dan, the 'system' was based on past lap times and race performances but the cut off point varied dependent on entrant quality. In my day the Oran Park cut off was pretty consistent at a lap time of around 57/58 sec but it did vary from time to time and at other circuits the Div 1 / Div 2 mix could be quite different. Warwick Farm, for example, did not often divide fields on a divisional basis as it was the home of the marque sports category which was a different basis for division of the sports car entry but, when they did run Div 1 and Div 2, their higher quality entry meant that the front runners in Div 2 may have been Div 1 at Oran Park. As I recall some clubs did give an indication of the likely cut off point in their event regulations but that was certainly not universal practice. At some of the country circuits such as Orange (Towac) or Hume Weir some Oran Park Div 2 regulars would unavoidably find themselves in Div 1 and the prospect of that could sometimes influence a decision as to whether or not to enter a particular meeting.
The 'art' referred to in my comment in post 1 was simply doing what was required to stay at the sharp end of Div 2 while avoiding promotion. That in no way inhibited the quality of Div 2 racing which was as cut and thrust as anything else but it certainly encouraged the man in front to avoid pulling out too much of a margin!!
As I have mentioned, Jack Evans was one of the Div 2 kings and I well recall his displeasure at one of the very early Amaroo meetings when he and I were both placed in Div 1. In place of his usual TC Jack had entered his road going Lotus Elan possibly in an endeavour to avoid placement in Div 1 at what was a pretty low key event. In the main Div 1 sports car race, we became involved in quite a battle over last position but, shortly after I had managed to find a way past him, Jack retired. When asked why after the race, he quite openly told me that he had decided that he would not be able to get past me again, he had never finished a race last and was not planning to start that precedent!!