"With a heavy sense of regret, I have made the difficult decision to not play with the Australian tennis team as they pursue an Olympic medal in Rio," Tomic said in a statement.
"I have always proudly represented my country in Davis Cup and given my all when wearing the green and gold.
"But on the basis of my extremely busy playing schedule and my own personal circumstances, I am regrettably unable to commit to this year's tournament."
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The 23-year-old had been heavily criticised following his exit from the Madrid Open when, on match point against Fabio Fognini, he held the racquet by the strings and did not offer a shot to the Italian's serve.
Tomic responded to the criticism by telling News Corp., "I don't care about that match point. Would you care if you were 23 and worth over $10 million?"
Chiller, who described the response as "appalling", said on Friday Australia would not twist anyone's arm to go to Rio.
"It's his choice. We don't force anyone to take part in the Olympic Games," Chiller told reporters on the Gold Coast. "We only want people in our team who want to be there and prepared to abide by what that team means."
Chiller added that Kyrgios was still treading a fine line as to whether he would be selected to the team.
Earlier this week, the 21-year-old player said of the warning: "If you don't want two of the best players in Australia to represent your country, so be it."
Chiller said earning a spot on the Australian team was about more than just results.
"It's not just about winning on the court, it is how you go about it," Chiller said. "Thousands of Australians would give anything, devote their whole lives to be at an Olympics and adhere to what that means.
"If someone doesn't see the value in that, then that's their loss."
(Writing by Peter Rutherford and Greg Stutchbury; editing by Amlan Chakraborty)
