His friends sought help from beachgoers to pull him out from underneath 1.5-metre of sand before the paramedics arrived at the scene.
A witness told NCA Newswire that Taylor stood up from his chair before losing his footing and falling into the hole when the walls caved in on him.
“I realised someone was head first in a hole and I was just digging, digging, digging,” said the witness, identified by his first name Nathan. “When I first went up to the hole, I couldn’t even see his foot. That’s how deep it was.”
It took about 15 people to free Taylor from the sand but he didn’t have a pulse, according to the eyewitness.
Taylor was airlifted to the Princess Alexandra Hospital in a critical state, where he succumbed to his injuries on Thursday, the Queensland police said in a statement.
Authorities were "further investigations into the circumstances surrounding the incident", and believe there may be "numerous people who were present and are yet to speak with police".
"Officers are appealing to those people, as well as anyone who may have dash-camera footage from the northern end of Bribie Island on Saturday to come forward," a statement said.
Taylor's family confirmed in an emotional statement that his life support had been switched off on Thursday afternoon.
The family described Taylor as the “best son, brother, boyfriend and mate we could all have wished for" who was loved and will be "missed every minute of every day".
“He fought as hard as he could and is the most courageous person we will ever know,” the family added.
A fundraiser created on behalf of Taylor's parents described the young man as "a vibrant and adventurous soul who has brought so much joy to those around him". The GoFundMe page has raised more than A$66,000 (£34,643) to support the family.