His brother and co-driver, Bret, 34, was treated at Waikato Hospital yesterday and was last night discharged.
The brothers, Sydney-based Kiwis, were placed sixth overall as they set out for the first stage of the event's second day.
In closed special stages, rally cars are allowed to reach speeds of up to 200km/h, but must maintain an average speed no faster than 140km/h.
Motorsport New Zealand chairman Brian Budd said drivers must also adhere to other rules and regulations, and stewards were investigating whether the crash was a result of driver error.
It was not known what speed the car was travelling at.
Ian Bayes, who was standing only 40 metres away when the car slammed into the stock underpass on his farm, said the brothers rounded a corner too fast.
"There's a bit of a hump and it's hard to see around the bend to see how tight it is," he said.
"He held it straight and didn't go into a slide but just couldn't slow up, he was going too fast. He slowly came off the road and came pretty close to bringing it back up, but his front wheel hit the underpass abutment and took all the railing off."
The vehicle made a "hell of a bang" as it slammed into the two-tonne abutment with such force that it dislodged the concrete block from its mounting.
Mr Bayes immediately thought both men must have been killed instantly.
"It stopped so quick from going so fast. They're lucky to get away with their lives, especially the driver, who was on the side that hit the parapet.
"The tubing around the driver was all right, but there was no tubular framing beneath him and there was no chassis in the car ... it just opened up like a can.
"There was a loud crash, bang, and smoke for a start. I was worried the thing was going to catch fire, but the following cars all carried extinguishers.
"By the time I came back out after ringing 111 they had it all under control."
Race organisers were last night in contact with Stuart Scoular's family, who asked that no information on his condition be released.
Mr Budd said such serious crashes did not happen often.
"There are rules and regulations [on] the running of the event and the cars to reduce the risks, but they are running on public roads at a reasonably high speed so it's not a sport that's immune from these sorts of incidents," he said.
"This is getting toward the upper end of the scale, but they do happen." - APNZ
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This morning's story:
Two brothers are in hospital, one in a critical condition, after their Targa rally car crashed into a concrete farm underpass during racing yesterday.
Brothers, Bret, 35 and Stuart Scoular, 42, Kiwis now living in Sydney, were taken to Waikato Hospital after their Subaru crashed into the bridge just before 8.30am yesterday near Lake Arapuni, while they were competing in the Rotorua to Hamilton leg of the Targa Rotorua event.
Both had to be cut free from the car by firefighters.
The driver, Stuart, was flown to Waikato Hospital by the Westpac Rescue Helicopter Service in a critical condition with serious injuries to both legs while Bret was treated at the scene by St Johns paramedics and taken to hospital by road, also with leg injuries.
Farm owner Ian Bayes, who witnessed the crash, told media the brothers' car took a bend before the bridge too fast and slammed into the underpass abutment. The impact dislodged the concrete block from its mounting.
Motorsport New Zealand general manager Brian Budd said he knew little about what happened yesterday but being motorsport, crashes did sometimes happen.
"It's always concerning when something like this occurs.
"We have very robust rules and regulations in place to reduce accidents but it is a motor sport."
There had never been a fatality during a Targa rally event, Mr Budd told The Daily Post.
According to the Targa website, the Scoular brothers were ranked fifth in their section after racing in Rotorua on Saturday.
They were competing in the allcomers' four-wheel-drive section in a Subaru Impreza WRX STi.
Drivers are allowed to travel at speeds of up to 200km/h in closed special stages of the Targa rally but their average speed must be no faster than 140km/h.
Police have impounded the brother's Subaru and Motorsport New Zealand would await the results of an investigation before commenting further, Mr Budd said.
Targa assistant course clerk James Logan said he knew the Scoular brothers and they were very experienced competitors on the Targa circuit.
"They were good, experienced Targa competitors," he said.
Officials were on the scene within minutes of the pair crashing, Mr Logan said.
"Our safety precautions worked as they should. Officials were close behind and they were there pretty promptly."
Mr Logan said he had been involved with Targa for about 18 years.
While organisers made every effort to ensure the safety of drivers and spectators, there were sometimes accidents.
"There are always risks because of the nature of the sport."
Another driver who spoke with The Daily Post but did not want to be identified, said everyone's thoughts were with the brothers and their families.
"We are thinking about them.
"When we heard we were all a bit shocked but this is the nature of motorsport. I'm sure the boys will be back behind the wheel before long," the man said.
Earlier story:
A rally car driver has been cut from his vehicle and flown to hospital after a serious crash in the Targa Rotorua rally this morning.
The Westpac Waikato Air Ambulance flew the driver to hospital with "severe injuries'' to both his legs.
He was accompanied by his brother on board the flight.
The rally car's passenger was taken to hospital by a road ambulance.
The crash happened on rural Lake Arapuni Rd, which has been closed for the race, shortly before 8.30am.
The event has attracted over 90 entries and comprises almost 400km of special stages and 500km of touring stages on both sides of the Mamaku Ranges.