The Albanese government will amend its budget to ensure that investment properties will not lose their grandfathered exemptions to changes to capital gains tax and negative gearing if one of its owners dies or a couple divorces.

Independent senator David Pocock led calls for Labor to amend the bill and ditch the 'widow's tax' to protect Australians. 

Finance Minister Katy Gallagher confirmed the legislation would be amended. 

'We have made clear from the get-go, from the evening the budget was announced that we were aware that there would be tranches of legislation, … that would require us to work through some particular and specific interactions of tax law in subsequent legislation,' Gallagher said.

'So we were aware of some of the issues that Senator Pocock is raising around grandfathering and shared ownership, and we were working through them in the usual way, and we intend to address these, the arrangements for jointly owned assets in circumstances like inheritance, or divorce, in subsequent legislation.'

The widow's tax would have impacted around 680,000 properties that had been bought before budget night on May 12.

Pocock had sought amendments to ensure 'certain CGT (and negative gearing) concessions remain available where an… asset is transferred because of a family law court order or the death of a joint tenant'.

'It allows the transferee to choose to apply the same concession to a later capital gain that the transferee would have been entitled to apply immediately before the transfer,' he said.

Pocock backed down from pushing ahead with the amendments himself, following the announcement by the Albanese government. 

'I don't think this is ideal,' he said.

'This should have been sorted out in this primary legislation. The Senate should have had more time to actually look at these issues that we are identifying.

'However, I'm prepared to take the government's commitment in good faith and therefore will no longer proceed with the amendments.'

More to come