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Has the trustee of a self managed superannuation fund (SMSF) breached the requirements of section 65 of the Superannuation Industry (Supervision) Act 1993 (SISA) by holding an asset of the SMSF in their own name?

No. A contravention of section 65 of the SISA did not occur as evidence clearly showed the intention of the trustee was to purchase an asset for the SMSF rather than make a loan to or provide financial assistance to the trustee in their personal capacity.

The funds of the SMSF were used to pay for convertible notes in a public company.

The public company incorrectly issued the convertible notes in the name of one of the trustees.

All interest payable on the notes was deposited directly to the SMSF's bank account.

The trustee of the superannuation fund sent a letter to the public company requesting the name on the convertible notes be changed to reflect the fact the notes were held by the trustee on behalf of the SMSF.

Section 65 of the SISA prohibits the trustee of a regulated superannuation fund from lending money of the fund, or providing financial assistance to members or relatives of the members of the superannuation fund.

However, evidence was provided demonstrating that the original intention was to purchase the convertible notes in the name of the trustee on behalf of the superannuation fund. The SMSF paid for the convertible notes and interest payable on the notes was paid into the superannuation fund's bank account.

Action has been taken by the trustees of the superannuation fund to rectify any misunderstanding regarding the arrangement.

The information provided showed that: (i) It was the intention of the trustees to have the convertible notes in the name of the superannuation fund; (ii) The superannuation fund paid for the convertible notes; (iii) All interest payable on the notes has been paid into the superannuation fund's bank account; (iv) A letter has been sent to the public company requesting the change of name on the notes where the notes were issued in the incorrect name; (v) The public company has confirmed that the change of name has occurred.

As the evidence verifies the original intention was that the notes were to be issued in the superannuation fund's name, it is considered that the superannuation fund was not lending money, or providing financial assistance to its members and therefore, no contravention of section 65 of the SISA.

However, paragraph 52(2)(d) of the SISA places trustees under a covenant to keep the money and other assets of the superannuation fund separate to those of the trustee personally (among others). A breach of a covenant may result in an action for loss or damage that occurred as a result of the contravention.