Ottawa introduced a number of measures in Wednesday’s federal budget designed to improve income tax fairness, including raising the basic personal income tax exemption and increasing RRSP limits. But Ottawa has failed to fulfil last year’s budget promise to consider tax prepaid savings plans.

Low- and middle-income Canadians will benefit most from the personal income tax changes. For example, the amount of income that Canadians may earn without paying federal income tax will increase to $10,000 by 2009.

According to Ottawa, that means 860,000 taxpayers will be removed from the tax rolls, including some 240,000 seniors. Ottawa estimates that 70% of the $7.1 billion in tax relief over five years will go to people earning less than $60,000 a year.

The basic personal amount will increase by $100 in 2006, $100 in 2007, $400 in 2008 and $600 in 2009 taking it to $10,000 by 2009 from $8,012 in 2004. The amount for a dependent spouse or common-law partner and a wholly dependent relative will increase in like amounts, reaching $8,500 in 2009 from $6,803 in 2004.

Meanwhile, Ottawa is increasing the RRSP annual contribution limit to $22,000 by 2010 and making corresponding increases for employer-sponsored registered pension plans by 2009.

Finance is also keeping its promise to implement recommendations of the Technical Advisory Committee on Tax Measures for Persons with Disabilities, by extending the eligibility of the disability tax credit and clarifying the eligibility criteria.

But after raising the issues in last year’s budget, this year’s budget had little to say about TPSPs, income trusts or reasonable expectation of profit (REOP).

The federal government proposed REOP legislation in October 2003 in response to Supreme Court of Canada decisions, which stated that the Canada Revenue Agency should not have the power to deny business losses based on its subjective view of whether a business should be making a profit.

Finance’s response states that interest expenses would only be deductible if there is a reasonable expectation that the taxpayer will realize a “cumulative” profit — not including capital gains. The problem with this requirement for many common shareholders is that the return on their shares is unlikely to achieve such a profit, say industry experts.

As a result of the protest against the proposed legislation, the consultation period was extended to August 2004. Finance promised in today’s budget to release “an alternative proposal for comment” soon.

Similarly Ottawa will continue to consult stakeholders regarding income trusts. The 2004 budget proposed to limit the level of pension fund investment in income trusts. Finance has promised to release a consultation paper shortly after the budget.

Finally, a notable absence from today’s budget was any mention of TPSPs. Contrary to the way RRSPs work, this investment vehicle would not provide deductions for contributions, but eventual withdrawals would not be taxed.

A finance department spokesman says that TPSPs have been under consideration but at this time, “it was determined that the best way to enhance tax-deferred investment savings is to raise the RRSP limits.” Implementing TPSPs on top of RRSPs involve administrative difficulties for financial institutions, he says.