AustraliaMy SMSF invested all funds in one property. Does this breach the sole purpose test?
Investing all SMSF funds in one property does not automatically breach the sole purpose test, but it may raise concerns about diversification, liquidity, and compliance with the fund’s investment strategy — which must itself satisfy the sole purpose test.
What the Law Says
The sole purpose test is the foundational requirement for self-managed superannuation funds (SMSFs) under Australian law. It mandates that an SMSF must be maintained solely for core superannuation purposes — such as providing retirement benefits — and not for any other purpose, including personal or business advantage.
The sole purpose test is set out in section 62 of the Superannuation Industry (Supervision) Act 1993 (SIS Act). It applies to all conduct of the fund, including investment decisions. While the law does not prohibit holding a single asset — like one residential or commercial property — the decision must still satisfy the sole purpose test.
Crucially, the fund’s investment strategy (required under section 52B of the SIS Act) must reflect prudent risk management, including considerations of diversification, liquidity, and the ability to discharge liabilities. A strategy that concentrates all assets in one property may fail this requirement — indirectly undermining compliance with the sole purpose test if it exposes members to undue risk or impedes retirement outcomes.
The ATO has clarified in Practical Compliance Guideline PCG 2016/5 and ATO ID 2015/18 that concentration risk alone doesn’t breach the sole purpose test — but trustees must be able to demonstrate their decision was made solely to provide retirement benefits, and not for personal use, tax avoidance, or related-party advantage.
Statutory TextAn approved superannuation fund shall be maintained solely for one or more of the following purposes: (a) providing retirement benefits for members; or (b) providing death benefits for beneficiaries of members;
— Superannuation Industry (Supervision) Act 1993, s.62 — Sole purpose test
Statutory TextThe trustees of a regulated superannuation fund must formulate, review regularly and give effect to an investment strategy...
— Superannuation Industry (Supervision) Act 1993, s.52B — Investment strategy
What to Do
Review your SMSF’s written investment strategy to confirm it explicitly considers diversification, liquidity, and risk — and document why a single-property strategy meets those criteria.
Ensure the property is held strictly for retirement benefit purposes — no personal use, rent below market rate, or related-party leasing without strict arm’s-length terms.
Obtain and retain independent evidence (e.g., valuations, rental appraisals, financial modelling) showing how the investment supports long-term retirement outcomes.
Update your strategy annually and record trustee minutes explaining ongoing compliance with the sole purpose test.
Engage a qualified SMSF auditor before your next audit — they will assess both the strategy and its implementation.
Sources
Not legal advice. This article is general information based on publicly available sources, written for educational purposes. Laws change and individual situations vary. Consult a licensed attorney in your jurisdiction before acting on anything you read here. Last reviewed: 2026-06-08.