In some cases, where the property or illiquid asset comprises a large proportion of the fund, SMSF trustees are finding themselves unable to meet the minimum payment requirements for their pension, he said.

“Whilst I do invest in property myself and promote people to do that, you’ve really got to have a balance,” he said.

“Especially in the retirement phase you’ve got to have more secure, liquid investments, and property doesn’t do that for you.”

In a presentation at the recent CPA SMSF conference, ATO assistant commissioner Kasey Macfarlane addressed similar issues.

“It’s not my intention to comment on whether or not real property is a good long-term investment; I just want to point out that it is undoubtedly a lumpy and illiquid asset and can present a liquidity problem, especially when it’s an SMSF’s major asset,” said Ms Macfarlane.

“For example, we see SMSFs paying pensions where the net rental income is insufficient and there are no other liquid assets or contributions being made to the SMSF.”

Mr Gillham said the problem was primarily an issue with unadvised SMSF trustees and stressed the important role accountants and advisers have in helping clients establish appropriate strategies.

Using large proportions of an SMSF to buy property is not something advisers would recommend since SMSF trustees "should have a spread of asset allocation", he said.

Mr Gillham said that ultimately, trustees are responsible and accountable for understanding the requirements of running an SMSF but added that advisers and accountants can help educate clients not only in their duties around compliance but also in the investment management of the fund.