Why is tax exemption granted to SRS funds (i) deemed withdrawn upon death or (ii) withdrawn in full on the grounds of terminal illness?

From year of assessment 2016, a specified amount of SRS funds (i) deemed withdrawn upon death, or (ii) withdrawn in full on the grounds of terminal illness, would be exempt from tax, to ensure that SRS members are not unduly disadvantaged due to death or terminal illness.

Currently, an SRS member can withdraw up to $40,000 per year [1] from his SRS account tax-free on or after reaching the prescribed retirement age [2], assuming that he has no other taxable income. Over the maximum withdrawal period of 10 years, he can withdraw up to $400,000 tax-free.

However, if an SRS member passes away before completing his SRS withdrawals or made a full withdrawal on the grounds of terminal illness, he would not be able to enjoy the full benefit from spreading out his SRS withdrawals over a ten-year period.

Hence, a tax exemption of up to $400,000 would be granted for SRS funds deemed withdrawn upon an SRS members demise or a withdrawn in full on the grounds of terminal illness.

[1] While 50% of the withdrawal of $40,000 (i.e. $20,000) is subject to tax, the tax rate on the first $20,000 of chargeable income is 0% from YA 2003.

[2] The prescribed retirement age is the statutory retirement age prevailing at the time of your first SRS contribution.