In the ongoing battle Ontario's micro-distilleries fight to remain sustainable and adequately compete with local wine and beer offerings, a new development might prove to be a crippling blow to the industry.

For local distillers, a new tax of 61.5 per cent on Ontario-made spirits sold in distilleries could mean the end of days. The tax is bundled into the Liberal Government's Bill 70 budgeting, which would reduce the amount of money independant distillers pay to the LCBO when a bottle of their booze is sold, but increase the tax they have to pay from sales in their own shops.

It's a nightmare situation for distilleries like the Toronto Distillery Company and Yongehurst Distillery. The Ontario Craft Distillers Association has challenged parts of the bill in the hopes of making changes that would help local distillers thrive instead of struggle, but so far things aren't working out.

"What we were really hoping for, and were most upset by, was to get something that was more comperable to the system that’s in place for beer and wine," Rocco Pannaci, who co-owns Yongehurst Distillery says.

"If a large scale brewery can sell a litre of beer at $6, a smaller micro brewer may sell that for $10-12 as it's more expensive for them to produce, yet small producers would pay less tax due to the same by-the-litre rate, plus a rebate incentive for small producers.

"For distilleries a percentage based tax means we're paying more than a large distillery for the same amount of product, plus no rebate, yet our costs are far greater."

This kind of situation makes it really hard for smaller distilleries to get ahead and do innovative things like, as Pannaci says,"distill things in alternative barrels or use local grains." That's because they don’t have the opportunity to make a profit to cover the additional costs incurred with that type of innovation. They were hoping for a system where smaller producers would get reducted rates.

Instead it looks like Ontario is moving towards a system where small distillers are treated the same as large ones, and wine and beer are given all the breaks.

Charles Benoit is equally as disapointed and disheartened with the recent tax announcement. He is the co-owner of Toronto Distillery Company and president of the OCDA.

"I was worried and this tax came along and my fears were confirmed and now it’s just accepting and planning," he says. "At the end of the day, what this tax confirms is the province isn’t interested in small scale distilling and grain model doesn’t work anymore."

Ontario distillers are already at a disadvantage. When they create a bottle and sell it for $27, $11 goes to Ontario and $4 to the federal government. That's for the first bottle they produce, not after a certain amount is produced.

Whereas B.C. distillers don't pay tax on the first 50,000 litres, here in Ontario, businesses pay from the first drop of liquor put into a bottle.

"We really relied on our retail store to sell things, but with the 61.5 per cent sales tax there’s no way for that to work," Benoit says. "Both the NDP and PCs are putting in amendments to this bill next week, and if they pass that would turn this around. We’ve been hoping for three years they would fix this but it’s clear now they’re not."

There's still time to fight against this and help out your local distillers by contacting your local MPP and lettting them know you're against the tax. But what would solutions be if they had the chance to bring them in?

"A true change would have been putting in place measures to hire a local employee, or get rebates based on using local products or local businesses," Panacci says. "Something that would let us see the benefit of being a local producer versus a large producer."

Panacci also wonders why distillers aren't allowed to make cocktails with their products in their shops, in the same way wineries and breweries are allowed to sell their product in-house.

"That would have been an alternative revenue stream so we could scale up," he says.

In the same way it took the province a while to embrace the world of craft beer, it seems we're struggling to catch on to the world of spirits. It's a frustrating reality both Yongehurst and Toronto Distillery Co. both live with, but they remain stubbournly hopeful.

"We are just trying to understand and hope that the progress that was made by the breweries and wineries over the years would have set a precedent that was easy to follow," Pannaci says.

"We keep hearing things like, this is a small step, and yes, but my question is always, why are we taking small steps when we have a model that clearly works?"

Editors note: the pricing of beer sales in a quote from Rocco Panacci was corrected from the original story.