Principal Garry Martin of Le Page Primary School in Cheltenham says instead of "Gay your life must be" the children now sing "Fun your life must be".
"All I was doing, relatively innocently, was substituting one word because I knew if we sing `Gay your life must be' the kids will roll around the floor in fits of laughter," Mr Martin told Fairfax Radio.
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He said that at his school children sometimes used the word gay in a disparaging way in the schoolyard.
"For example, if a boy is not particularly good at sport and they will refer to that child as gay," he said.
"They have a vague idea how it can be used but they don't really know the full extent of it."
Earlier this year, the 75-year-old song was involved in a legal controversy over a riff used in the Men At Work international hit Down Under.
In an interview on the Nine Network, Mr Martin was backtracking on his decision, saying maybe he should have discussed the true meaning of the word with the children.
"In hindsight that is what I probably should have done, I just didn't realise the implications," he said.
"I wasn't trying to incite or insult gay people, or trying to violate copyright of Larrikin Music, it was just a decision at the time that I thought would minimise a disruptive atmosphere with grades one and and two."
