Folau, a fundamentalist Christian, faced a three-member panel over three days of hearings to decide whether he had breached the code of conduct with a post that said "hell" awaited "drunks, homosexuals, adulterers" and others.
"The panel has today provided a judgement that Israel Folau committed a high-level breach of the Professional Players' Code of Conduct with his social media posts on April 10, 2019," Rugby Australia said in a news release.
"The panel will now take further written submissions from the parties to consider the matter of sanction."
Folau has a right to appeal the judgement but a high-level breach of the code of conduct would be sufficient for RA and his Super Rugby side, the New South Wales Waratahs, to dismiss the 73-test back.
Both bodies said they would do just that after Folau shared the post on Instagram last month, declaring that it had "disrespected" people on the basis of their sexuality.
A local media report at the weekend said Folau and his advisors had last week rejected an offer of A$1 million ($702,500) to walk away from the game.
Folau's trial has stretched far beyond the rugby pitch, triggering a wider debate in Australia about freedom of speech and the power of employers to control their employees away from the workplace.
A high profile recruit to the sport in 2013, the former rugby league international and Australian Rules player last month became the top try scorer in the history of Super Rugby.
His desire to share his religious faith on social media got him into trouble for the first time last year, when he posted a similar message about those he considered "sinners".
Despite being hauled before RA and Waratahs' executives for "discussions" about the post, Folau escaped sanction and signed a new deal to take him through to the end of the 2022 season.
The 30-year-old now looks highly unlikely to play for the Waratahs or Australia again and the Wallabies will go to this year's World Cup in Japan without one of their few world class players.
Wallabies coach Michael Cheika was among those who gave evidence at the hearing along with Folau, RA chief executive Raelene Castle and her Waratahs equivalent Andrew Hore.
Local media reports said Cheika and Castle had offered testimony that Folau had given them personal assurances last year that he would not post such material on his social media accounts.
The offending post, which has attracted 54,000 'likes' and 48,000 comments, remains on Folau's Instagram page (www.instagram.com/izzyfolau/).
(Reporting by Nick Mulvenney; Editing by Sudipto Ganguly)
