The province's small distillers say a proposed new tax on sales of made-in-Ontario spirits by the Ontario Liberal government has the potential to kill their industry.

The new tax, which would amount to what distillers say is 61.5 per cent on every bottle sold, was proposed last month and is among a number of new measures that form the Ontario Liberal government's upcoming budget bill.

"For the volume that a micro-distillery does, compared to the bigger guys – the Bacardis the Diagios – it's just not sustainable," Chevy Patterson, a co-owner of Guelph-based Dixon's Spirits, told CBC News.

Ontario craft distillers, such as Guelph-based Dixon's Spirits, say a new tax being proposed as part of upcoming budget legislation from the Ontario Liberal government has the potential to kill their industry, if passed. (Colin Butler/CBC News) "Quite frankly this was a blind side and it was a knife in the back. We have no idea where this came from."

Fast-growing industry

Patterson and his Guelph business partners run one of 16 small distilleries that have sprouted up across the province in the past five years.

They belong to the Ontario Craft Distillers Association, an industry group that has been in talks with the provincial government for the past two years.

Those discussions have focused on how to loosen Ontario's strict prohibition-era laws on spirits and help foster the kind of growth that's allowed Ontario craft beer and wine to prosper.

Liberal Finance Minister Charles Sousa wouldn't agree to an interview, but issued a statement that said a new Ontario tax of spirit sales puts more money in the pockets of distillery owners compared to the LCBO fee it replaces. (Frank Gunn/The Canadian Press) What the government has proposed is a new tax that would, the Liberals say, put more money in distillers' pockets by replacing an old LCBO mark-up fee.

Not worth the time

Liberal Finance Minister Charles Sousa declined an interview with CBC News.

In a statement, he wrote that the distiller's share of the revenue would increase, from 39 per cent under the old LCBO fee, to 45 per cent under the new proposed tax.

The reason small distillers aren't happy with it, they say, is it tilts the competitive advantage in favour of large distilleries.

The proposed law would give distillers a tax exemption on up to 1,250 litres of spirits for promotional purposes in order to help them make more people aware of their product.

Chevy Patterson, a co-owner of Dixon's Spirits, examines equipment inside the company's Guelph-based distillery. He says a new Ontario tax could force the spirit maker to turn to the export market or contract work just to stay financially afloat. (Colin Butler/CBC News) The trouble is, many small distillers either don't have their product stocked on LCBO shelves or make so little money on selling to the public through the Crown Corporation, it's not worth their time.

'Super-complicated math problem'

On top of that, small distillers argue the new tax gives the Crown more revenue on all spirits sold.

"The Ontario government will receive more in tax than we do [entirely]," said Ontario Craft Distillers Association President and Toronto Distillery Co. Ltd. co-owner Charles Benoit.

"I'm not talking about our margin or our profit, I'm talking about what we got on the whole bottle," he explained.

"Why we're all mad at this is because they tied us up in this Premier's Advisory Council for two years," he said. "They made us all sign non-disclosure agreements so we couldn't talk to our elected representatives."

NDP Finance Critic Catherine Fife says given the scathing report issued by Ontario's Auditor General last week on the Liberals' misspending, no-one should trust the party's math. (The Canadian Press) "We spent so much time and resources and effort about actual education of how our business works," he said. "This tax is so complex... we couldn't even figure it out," he said. "It's like a super-complicated math problem."

'Where's the rationale?'

"It doesn't make any sense," NDP Finance critic Catherine Fife said. "We put the question to the minister of finance, 'Where's the rationale? Explain how a 61.5 per cent tax at point-of-sale is going to be helpful to this industry?' Those questions have obviously gone unanswered."

"These craft distillers, it's their dream to be independent businesses," Fife said. "This is a great way for us to grow our local economies and businesses. Why Kathleen Wynne and this finance minister ... are ... imposing a tax that would close them for good, makes no sense."

"This is not a government that has any credibility when it comes to following the money," Fife said, noting last week's Auditor General report that scolded the Liberal government for spending millions on self-congratulatory ads. "We believe the craft distillers because they have a better sense of what their financial reality is."

As for the craft distillers, most said if the new tax is passed, it only leaves them with two bleak options: either stop selling the wares in Ontario, [or] close up shop.