Backgrounder - Transfer and Discontinuance of Railway Lines

Canada Transportation Act Part III, Division V

The Canada Transportation Act (Act) provides a framework for railway companies under federal jurisdiction to transfer or discontinue railway lines provided certain procedures are followed.

The Act also sets out a process that must be followed by federal railway companies before certain urban railway sidings and spurs located in a metropolitan area or within the territory served by any urban transit authority ("siding or spur in metropolitan area") can be dismantled.

Part III, Division V of the Act, sections 140-146 outline these processes.

The process for transferring or discontinuing railway line operations

Who does this process apply to?

The railway line transfer and discontinuance process applies to all railway lines held by federal railway companies.

Yard trackage, sidings (track sections distinct from a main/branch line), spurs (short side tracks that connect with a main/branch line) or other track auxiliary to a railway line are not subject to the transfer and discontinuance requirements of the Act, with the exception of sidings or spurs located in metropolitan areas or areas served by urban transit authorities, which can only be dismantled in accordance with the process set out in sections 146.2 to 146.5 of the Act.

Upon application, the Agency can assist by making a railway track determination on whether a particular trackage meets the criteria.

How does the process work?

A railway company may sell, lease or otherwise transfer a railway line at any time for continued railway operations. However, if it sells, leases or otherwise transfers only a portion of a grain-dependent branch line (essentially, a rail line that is used mostly to transport grain), the railway company must continue to operate the remaining portion of the line for three years unless the Minister of Transport determines that it is not in the public interest for the railway company to do so.

The steps that a railway company must take before it may discontinue operating a line are set out in sections 141 to 146.1 of the Act.

Steps for transfer or discontinuance

Step 1 – The three-year plan

Every federal railway company must prepare and keep up-to-date a plan that indicates, for each of its railway lines, whether it intends to continue operating the line or if it plans to take steps to discontinue operating the line within the next three years. The railway company must make this three-year plan available for public inspection at designated offices and notify a number of parties, including the Agency, when changes to the plan are made.

A railway company cannot take steps to discontinue operating a line until it has indicated its intention to discontinue operation on the line in its three-year plan for at least 12 months.

Step 2 – Advertisement

When the railway company wishes to discontinue operating a line of railway, it must first publicly advertise the availability of the line, or an operating interest in a railway line, for sale, lease, or other transfer for continued operations. This advertisement must include the company's intention to discontinue operating the line if it is not transferred, as well as a number of other specific elements.

Step 3 – Expression of interest and negotiations

Should anyone express an interest in acquiring the line, the railway company must disclose to them the process it intends to follow for receiving and evaluating transfer offers.

The railway company has six months from the advertised deadline to reach an agreement with an interested party. If an agreement is not reached within six months, the railway company may decide to continue the operation of the railway line and amend its three-year plan.

The railway company or the prospective buyer can, at any time during the six months of negotiations, apply to the Agency for a determination of the net salvage value of the assets offered for transfer. In this step, an applicant must reimburse the Agency's costs associated with the determination. For further information, please see the Guidelines Respecting Net Salvage Value Determination Applications.

If no one has expressed interest in acquiring the line, or if no transfer agreement is reached with an interested party, or a transfer is not completed in accordance with any agreement reached, during the six months period, the railway company may continue to Step 4.

Both the railway company and prospective buyer must negotiate in good faith. Should the Agency, upon complaint, find that the railway company is not negotiating in good faith and that the sale, lease, or transfer of the railway line, or the railway's operating interest in the line, would be commercially fair and reasonable, it may order the railway company to enter into an agreement with the interested party to effect the transfer. Also, if the Agency finds upon complaint by the railway company that the interested party is not negotiating in good faith, it may order that the railway company is no longer required to continue negotiations.

Step 4 – Offer to governments and urban transit authorities

If an agreement with a prospective buyer can not be reached and the railway company does not wish to continue the operation of the railway line, the railway company must offer to transfer all of its interest in the railway line to the applicable federal-provincial and municipal governments and urban transit authorities, at no more than the net salvage value of the line. The railway line may be purchased for any purpose. Each government and urban transit authority has a specific and limited time period to accept the offer.

If a government or an urban transit authority has accepted the offer, but cannot agree with the railway company on the net salvage value of the line within 90 days of any government's acceptance of the offer, the Agency may, upon application, determine the net salvage value of the line. For further information, please see the Guidelines Respecting Net Salvage Value Determination Applications.

Step 5 – Notice of discontinuance and compensation

If there has been no agreement on the sale, lease or other transfer of the railway line (see Steps 3 and 4) and if all steps of this process have been complied with, the railway company may discontinue operating the line upon providing notice of that discontinuance to the Agency. The railway company then has no further obligations under the Act with respect to the operation of the railway line, nor does it have any obligations with respect to any operations by any public passenger service provider.

Under the Act, railway companies are required to compensate municipalities or districts that have had their grain-dependent branch line discontinued. A railway company that discontinues a grain-dependent branch line must make three annual payments to a municipality or district through whose territory the railway line passes, in the amount of $10,000 per mile for each mile of the line within the municipality or district.

Return of railway line to former owner

A railway line may be returned to a railway company after it has been transferred through the transfer and discontinuance process. Upon return of the railway line, the railway company has 60 days to either resume operations on the line or follow the transfer and discontinuance process as set out in Steps 2 – 5.

If the railway company decides to follow the process set out in Steps 2 – 5, the company has no obligations under the Act in respect of the operation of the railway line.

For more information, please review the Agency's webpage on railway line transfer and discontinuance.