The regulatory change, which came into effect July 31, adds a $275 processing fee on top of a $150 work permit for musicians from outside the country who are hired to play here at small venues.
Mike Campbell, co-owner of the Carleton Music Bar and Grill in Halifax, said the $425 cost that is applied to each crew member belonging to a musician or band will drive up ticket prices at his 100-seat venue.
"We're talking $850 to bring in one guy with an acoustic guitar ... and that would add $8.75 to every single ticket I sold for the event just to cover the governmental red tape," Campbell told a news conference at his bar Friday.
"For some place my size, that just does not make any sense and we will not be able to do it."
Megan Leslie, the NDP MP for Halifax, said the processing fee is detrimental to local music scenes.
"It is crippling small business," Leslie said alongside Campbell.
"It needs to stop and it's a pretty easy solution ... just get rid of it."
The federal government does not charge the fee to places it considers concert venues. Non-profit music festivals are also exempt from paying the fee.
Jason Kenney, the employment and social development minister, declined an interview request. But a spokeswoman for the department said the fee covers the cost of helping determine whether a Canadian should be hired instead of a temporary foreign worker.
Alexandra Fortier said in an email that taxpayers should not have to pay the cost of foreign workers to come to the country.
"It is important to note that when international artists are being booked by a promoter or booking agent to play at several bar and/or restaurant venues across Canada, they are only required to pay (the fee) once," she said.
Campbell said because artists are usually booked three to six months in advance, many small businesses aren't feeling the full effect of the new fees just yet.
Venues on the East Coast have it particularly hard, Campbell said, as many touring acts skip over the region and head to more populated city centres. Campbell said he often has to pony up for plane tickets to get artists on his stage.
"I'm bringing in one guy, and quite often I'll put them together with local musicians to make a very special, awesome event," said the former MuchMusic host.
"All of that goes down the toilet the second ... they start applying the (fee) to me."
Campbell said it doesn't make sense to him that his bar is not considered by Ottawa to be a concert venue, adding that the Carleton has won at the East Coast Music Awards for best live venue.
"It seems to be that we should be considered a venue, but because we serve food, we're not," said Campbell.
"If you're winning all the awards for venue of the year, surely to God you can be considered a venue."
Fortier said over the past few years, some Canadian musicians have complained to the department that venues are booking international artists over them.
"Canada is filled with high-calibre musical talent, and it is ridiculous to claim that Canadian musicians can only become successful if they are included in a show with international artists," she said.
But Campbell said his business needs international acts because there isn't enough Canadian talent to fill the bill.
"The idea that there is enough great Canadian acts to feed places like mine is insane."