I'm very late to this discussion!
I live in Sydney and can assure you that all the filming occurred on location.
However, what is , perhaps, more interesting is that the locations are all over the place!
Whilst Anthony Lapaglia's character is depicted as living in Balmain (which is an inner city suburb, near the Harbour, just west of the Harbour Bridge) and some scenes are shot in Kings Cross (very inner city), Barbara Hershey and Geoffrey Rush's characters live in the far north west.
Indeed, I think the Hershey / Rush house might be just outside Sydney, on the way to Gosford. It's a good hour's drive from where Lapaglia lives. Seems unlikely that it would be an area wihtin his police jurisdiction.

No they didn't. They were yellow New South Wales (the state Sydney is in) plates.

also the number plates are Melbourne i think we had to do it this year for English.. and i think that they had Melbourne plates.

No it doesn't. Both Sydney and Melbourne have phone numbers starting with 9. Also, if you Google the number, it comes up with Fuji Film in Balmain.