The 28-year-old suspect was expected to appear before a magistrate Friday, PerthNow reported. He was originally detained Wednesday during a search of a property in Mandurah, 45 miles south of Perth.
Stephen Cookson's body is still missing. A girl beachcombing with her family on Rottnest Island about 11 miles off the coast of Western Australia found the head in early January.
Days later, it was identified as Cookson, 56.
Cookson was convicted of possession of heroin with intent to distribute in 2000. He was a longtime figure in the racing world in Victoria and Western Australia and, in 2005, was fined by racing authorities for an assault on an owner.
Lawyer Tom Percy called his former client "charming, well-spoken, articulate." But he said Cookson was involved in the drug business.
Percy believes Cookson's killer or killers wanted the head to be found to send a message to others.
"It just shows there is a drug underworld in Perth, there are some very nasty people here," Percy said. "It is not idle threats. You cross some of these people, you end up dead in a bag on the other side of Rottnest. That is quite terrifying."