THE federal government admits it hasn't budgeted for a legal stoush with big tobacco over the world-first plain packaging laws that have passed the Senate.

The legislation requiring all cigarettes to be sold in drab olive-brown packs with prominent health warnings passed the Upper House on Thursday evening.

But the draft laws will have to return to the Lower House for a final tick of approval, after the start date was amended.

Plain packaging will now be enforced from December 2012 – six months later than originally planned.

British American Tobacco Australia (BATA) confirmed on Thursday it would launch a challenge to the laws as soon as they received royal assent.

The company will argue it is unconstitutional for the government to remove its trademarks and other intellectual property without compensation.

"The result of BATA's legal challenges could force Health Minister Nicola Roxon to pay tobacco companies billions of dollars for the removal of trademarks, brands and pack space," the company said in a statement.

However, Labor insists it is on strong legal ground with the laws.

Ms Roxon said on Thursday the government was prepared for legal action.

"We won't be bullied by tobacco companies threatening litigation and we are prepared to fight them if they do take that step," she told reporters in Melbourne.

But her representative in the Senate, Jan McLucas, told the Upper House later the question of funding for a legal challenge was only hypothetical.

"No funding has been specifically provided for potential litigation costs," Senator McLucas  said.

"Whilst we've had threats from the tobacco industry, we don't have legal case.

"Let's jump that bridge when we get there or if we get there."

Liberal senator Concetta Fierravanti-Wells was surprised by Labor's approach.

She said it would have been "prudent" to budget for a legal battle, given that possibility had been "very much in the public arena".

"Last time you told us that you were on strong legal grounds, you ended up in the High Court with your failed Malaysian [asylum seeker] solution," Senator Fierravanti-Wells told the Senate.

Ms Roxon said the passage of the legislation was one of the most significant public health measures in Australia's history and the government would not be intimidated by big tobacco.

"Plain packaging means that the glamour is gone from smoking and cigarettes are now exposed for what they are: killer products that destroy thousands of Australian families."