Smith is reportedly ready to agree a $3.3 million AUS deal with the Tokoy-based side, who are coached by former Australia boss Eddie Jones.
The Herald newspaper are claiming that Jones will travel to France next week to complete the high-profile signing of the Toulon flanker.
Toulon offered Smith an extension to his current one-year deal but the team's owner Mourad Boudjellal stated at the weekend that the 30-year-old would be heading to Japan.
''Smith decided to leave for Japan and we can't keep him,'' said Boudjellal.
''Everyone will remember his time here. He has been an exceptional player at all levels.''
Smith has also been widely linked with fellow Japanese side Sanyo Wild Knights but national champions Suntory seem to be his most likely destination following a single year stint in France.
The former Brumbies favourite moved to Europe in the summer of 2010 and has been a central figure for a Toulon team who can boast a wide array of back-row talent.
As well as being a regular starter in the Top 14, Smith featured in five of his side's seven Heineken Cup fixtures, scoring a try in the quarter-final defeat to Perpignan earlier this month.