Labor prepared to fast-track fix to negative gearing 'widow tax'

The government has signalled it is willing to fast-track a fix to its unintended "widow tax", which is cutting off people from eligibility to negatively gear a home when their partner dies.

The Coalition has demanded an immediate fix to the loophole created by negative gearing changes in return for its support for a $37 billion savings plan for the NDIS.

The federal government is hoping to settle negotiations on its NDIS savings package so it can be passed this week.

Treasurer Jim Chalmers says the government is prepared to fast-track a fix to the unintended "widow tax" created by its changes to negative gearing if it will win the Coalition's support to save $37 billion in NDIS spending.

The Coalition is supportive of the massive savings package for the NDIS but has remained in negotiations with the government on the bill, which it hopes to pass this week.

Yesterday, Opposition Leader Angus Taylor issued the government an ultimatum for its support on the NDIS: fix the "cruel" loophole unintentionally cutting off home owners from negative gearing if their partner dies or they separate due to family violence.

Property investors are still able to claim rental losses on their income tax, known as negative gearing, if the home was bought or settled before budget night.

But the government's tax changes announced in May introduced an unintended consequence for co-owners of an investment property that meant if one of them died, the partner who inherited their share of the property would lose the ability to negatively gear it, since it now counted as a new ownership for tax purposes.

Independent senator David Pocock identified the "widow tax" as the negative gearing changes were passed through the Senate with the support of the Greens, calling for it to be abolished as a matter of urgency since it was already preventing individuals from securing financing.

Senator Pocock has raised the case of a woman who left her partner due to family violence, and was now unable to secure a bank loan to refinance her investment property that she co-owned with the former partner since it would no longer be eligible for negative gearing after July next year.

The federal government has introduced draft legislation that would fix the loophole as part of a second tranche of housing tax reforms. However that bill was not expected to be dealt with this fortnight.

This morning, Mr Chalmers said the government was willing to negotiate a fast-tracked fix to the widow tax in order to win the Coalition's support on its massive NDIS savings package.

"The government has already made it abundantly clear, crystal clear, that we are addressing some of those issues raised in that draft legislation that I put out some time ago, and that we have consulted on," Mr Chalmers said.

"Now, if the opposition's main ask is that we pass the government's legislation quicker, then obviously I'm up for that discussion."