You can use expense based expenses to have the system process expenses based on other expenses. Expense based expenses can calculated expenses based on all types of expenses, such as fixed and variable expenses, as well as expense reimbursements. The system can calculate expense based expenses at the total fund level and at the class level. A class level expense based expense can have different expense rates for each class. Expense based expenses can include positive and negative expenses as well as expense reimbursement adjustments in the calculation.
Expense based expenses apply a rate to a set of specified expenses identified via ledger accounts. They do not use tier rules. You can set up an an expense based expense rule with rule criteria that can include one or more ledger account ranges. These expense based expense rules are similar to the rules used for Ledger Based type adjusted NAV expense rules. For example, an expense based expense rule specifies that the expense based expense's NAV component includes all the ledger accounts from the capital and income ledger accounts on the income statement. You can also apply external values to the rule.
From a technical perspective, an expense based expense rule is a type of adjusted NAV expense. As with a Ledger Based adjusted NAV expense, you can set up an expense rule with criteria that includes a set of ledger accounts, and derive the total net assets used to calculate daily expenses of a fund by including components of fund activity. Because calculations for expense based expenses depend on other expenses, by default you process expense based expenses as the last step of global expense processing, after the completion of all other expense and expense reimbursement processing.
For example, mutual funds in Canada are subject to Harmonized Sales Tax (HST) and Goods and Services Tax (GST) on management fees and various other administration fees. You can use expense based expenses to apply an expense on an expense in this scenario.
WRITERS NOTE: this section needs review. confirm use of manual NAV overrides
To use expense based expenses:
- Create an expense based expense rule.
The rule can include one or more ledger account ranges for fund activity. - Create an expense based expense that uses the expense based expense rule.
You can create an expense based expense at the TF or class share class level. You define a fixed tax rate for the system to apply to the underlying expense amount. - After processing other types of expenses and reimbursements is complete, process the expense accruals for the expense based expenses.
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