Smith signed a contract extension with New Zealand Rugby (NZR) earlier this year, with a sabbatical clause that allows him to take a break from rugby.
Former All Blacks captain Richie McCaw, flyhalf Dan Carter and centre Conrad Smith had similar clauses in their final contracts with NZR.
The Otago Highlanders captain would exercise that clause after the All Blacks' Rugby Championship clash against Australia in his hometown of Dunedin on Aug. 26, the New Zealand Herald reported on Sunday.
The 31-year-old Smith would therefore miss the four remaining All Blacks tests in the Rugby Championship, their third Bledisloe Cup clash with the Wallabies in Brisbane on Oct. 21 and the three tests on the end of year tour.
The All Blacks' vice-captain has battled concussion issues this season and was ruled out of the final two tests of the British and Irish series after failing a head injury assessment in the first match at Eden Park.
All Blacks coach Steve Hansen, however, told reporters before the third test that further checks had indicated Smith's concussion-like symptoms were being caused by an inner-ear problem that could be treated with medication.
While arguably the best fullback in world rugby, Hansen would have no problems filling the gap left by Smith.
Israel Dagg moved back to his preferred fullback role for the second Lions test before rookie Jordie Barrett made his first All Blacks start in the third match of the series, which was drawn 1-1.
Rugby World Cup winner Nehe Milner-Skudder can also play fullback, while two-test All Black Damian McKenzie shapes as a replacement with his utility value as a flyhalf as well.
Smith was rested for the Highlanders' final Super Rugby game against the Queensland Reds on Friday but is expected to return for the side's quarter-final against the Canterbury Crusaders in Christchurch next weekend.
(Reporting by Greg Stutchbury; Editing by John O'Brien)
