Schools would receive legal protection to hire staff on the basis of trust under a bill expected to go to federal parliament as early as next week.
However, the bill on religious discrimination would not allow a school to dismiss a teacher based on their sexuality or other trait.
The bill will be presented to a joint coalition party meeting in Canberra on Tuesday and could be presented to parliament as early as Wednesday.
It is understood that a disputed part of the bill – known as the “Folau clause” – has been removed from an earlier version.
The department would have protected organizations from indirect discriminatory claims if they had acted against employees for misconduct for expressing their religion.
There has been a push by conservative groups for the bill to allow individuals and organizations the freedom to make statements of belief, such as Israel Folau’s controversial posts on social media saying homosexuals will go to hell.
Folau, who was sacked by Rugby Australia in 2019 due to the charges, later received an apology from the body and a confidentiality agreement.
Also believed to be removed is a section in the bill allowing health care providers to “knowingly object” to providing a service for religious reasons.
Education Minister Alan Tudge told Sky News on Wednesday that the bill would confirm a religious school’s right to hire teachers of its own faith.
“This is a critical principle at play … you can’t be a Catholic school if you can’t hire Catholic teachers, you can’t be an Islamic school without hiring Islamic teachers.”
Asked if it also meant a Catholic school could reject a gay teacher, Mr Tudge said: “That would not be legal under our bill.”
He said that while the bill has not solved a major problem, the laws will enable schools to “provide a good education compatible with the values they publish”.
The bill was an election promise of the Liberal-National coalition but has sat in the too-hard basket since then because conservatives and moderates disagree on how far it should go.
A worker waits for the detail before determining his position.