When setting up a towbar to tow a trailer behind an outfit should the tow bar be located so the right hand side wheel of the trailer be in line with the bike wheels (in Aust) or should it be so the trailer sits midway between the bike and the chair.

sounds like you are needing more luggage space Mike . 
Al has been down the track a few times with his outfit and trailer , I'm guessing he will be the best to ask .

The way legislation is worded, the towbar should be attached to the bike and have a compliance plate attached(as do all towbars).  But of course that means a very wide vehicle in the end.  Any towbar I've had has been mounted in the same line as the inside (right side) sidecar Chassis rail and nothing has ever been said by rego people, police etc. Some of my towbars ahve been commercial (custom built) and some self built because you cant buy one of the shelf anyway. My trailer sits completely inside the outer extremities of the bike/sidecar using roughly 2 wheels tracks plus a bit.

Not quite the middle but fairly close.   In theory this means extra weight pulling the outfit to the left as the weight of the trailer pulls the chair back.  In practice you don't notice any steering difference whether you have a trailer behind you or not. 

Pretty well every sidecar towbar I've seen has been in line with the right edge of the sidecar also.

Ask away

Al