Smaller vineyards have relied on the wine equalisation tax rebate for more than a decade, which subsidises businesses for a 29 per cent tax on the wholesale value of their products.

But in a move that surprised many, the government will reduce the rebate cap from $500,000 to $290,000 by July 2018 while tightening eligibility restrictions.

Frank van de Loo, who owns the Mount Majura vineyard on the outskirts of Canberra, said the change could see businesses contract to minimise their tax liability.  

"At the moment we have been relying on the wine equalisation tax rebate to be a sustainable business and if it were pulled away today, we would really struggle to make ends meet.

"There are often calls to change the rebate and I am always conscious of losing it."

Ken Helm, who manages the Helm vineyard just outside Murrumbateman, is one wine maker who has re-evaluated his business strategy because of the change.

"We have almost made the decision to not expand because of this and that means we won't be able to employ more people and pass on the economic benefits," he said.

"Many smaller wineries like us are likely to try and stay below the revised rebate cap because of these changes. It is a blatant contradiction of the jobs and growth message the government is trying to sell."

Mr Helm, who welcomed reforms to stop larger companies rorting the system to avoid tax, said medium sized businesses were likely to be hardest hit and could shed jobs.

The move is expected to raise $300 million in revenue over four years with nine-tenths of all rebate claims under $290,000.  

Under the tightened eligibility criteria, a wine producer must also own an interest in a winery and sell packaged, branded wine domestically.

The change is designed to ensure so-called virtual winemakers – who do not have an investment in vineyards but profit from the profits – cannot access the rebate.

Mr van de Loo said the restrictions were welcome and would ensure larger companies did not split assets to access the rebate.

"Under new rules, you can only claim the rebate if you actually grow the grapes and there are a lot of younger innovative producers in Canberra who don't meet that criteria."

"These younger producers don't have the capital to plant a vineyard or start a winery because that requires a substantial investment, but they are doing a lot for our industry.

"They are doing all the right things and the danger is they will become the unintended victims of reform."

Alex McKay, winemaker and owner of the acclaimed wine brand Collector, said the changes could hurt the next generation of Canberra district brands.

"These people are starting their own businesses without wineries and are the future strong brands of Australian wine," he said.

"It would be unfortunate if they were hit with this simply because they don't have the money for their own vineyard."