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 Canadian National Railways (CNR) in Southern Ontario
With the insolvency of the Canadian Northern Railway and the Grand Trunk Pacific in 1917, the Government of Canada could not afford to let these two railway systems fail.  The Canadian Northern owed the Canadian Bank of Commerce $25 million.  Defaulting on these loans would have precipitated a financial crisis akin to the stock market crash of 1929. 
The Government had guaranteed the payment of hundreds of millions of dollars in bonds issued by these two lines. Closing down these two lines would have resulted in the bankruptcy of the country.
The Government of Canada was already in the railway business in the Maritimes through the Intercolonial Railway.  Completed in 1876, the Intercolonial was the price of Confederation demanded by Nova Scotia and New Brunswick.  It typically operated under the direct control of a government department - first under the Department of Public Works and then under the new Department of Railways and Canals in 1879.  In 1897 the "Intercolonial" name disappeared to be replaced by the name of "Canadian Government Railways" (CGR). 
In 1916, as the CNoR needed more and more money to complete its system in Eastern Canada and British Columbia, Mackenzie and Mann were forced to transfer their ownership of the CNoR to the Government of Canada.  The Government acquired 510,000 out of 600,000 shares on November 5, 1916.  The only shares they didn't acquire were those pledged to the Bank of Commerce as security for their loans.


With the takeover of the CNoR, the Government of Canada now had two railway systems on its hands. On November 20, 1918, responsibility for the CGR was given to the Board of Directors of the CNoR. 
Good marketing requires a good "brand name" and railways are no exception.  One month later, on December 20, 1918, the name "Canadian National Railways" was authorized to be used to describe the CNoR and CGR systems. 
While legislation was passed on 06 June 1919 incorporating the "Canadian National Railway Company", CNR, as a corporation, didn't formally come into existance until three years later when the legislation was proclaimed.  On October 4, 1922, the Government of Canada appointed the first Board of Directors of the CNR - thus completing the formation of the company known as "Canadian National Railways. 
Now that's a lot of dates to remember just for the formation of the CNR - which creates some controversy amongst us "fanatiques ferroviaire".  There were other dates associated with the formation of the CNR but we'll leave that to the official history books.  But we've gotten ahead of ourselves.  Let's back up to 1918. 


Next in line was the Grand Trunk Pacific and the parent Grand Trunk Railway.  Up until this time, the GTP was operated as a subsidiary of the GTR. However, the GTP was a sink-hole for cash which the GTR couldn't afford.  On March 10, 1919, the GTP went into receivership and the Government took over its operations.  On July 12, 1920, responsibility for the GTP was formally given to the CNoR (by this time firmly under control of the Government of Canada) for operation as part of the "Canadian National Railways" system (at this time, "CNR" is only a "brand name"). 
The Government now had 3 separate railway systems on its hands.  The CGR system covered the Maritime provinces.  The CNoR and GTP more than adequately covered the western provinces and British Columbia.  What was missing was a system in Quebec and Ontario, and there was only one system left in these markets - the GTR.  Because the GTR had guaranteed the obligations of the GTP, it was in a weak financial position - if not in 1918, then certainly in the future. 
From 1918 to early 1920, the Government "negotiated" to take over the GTR.  On March 8, 1920, an agreement was reached whereby the GTR would be operated in harmony with the CNR under a joint management committee. ("CNR" is still a "brand name" to describe the CGR, CNoR and GTP under the management of the Board of Directors of the CNoR.) 
On October 4, 1922, the Board of Directors of the CNR (now incorporated) is appointed as the Board of Directors of the GTR.  The Government of Canada effectively controls the GTR.  The noose is closed with legislation amalgamating the GTR into the CNR effective January 31, 1923.   While the CNoR, GTR, and their subsidiaries continued to exist as shell corporations, for all practical purposes, everything was operated by the corporation known as Candian National Railways.


Canadian National Railways
1871 Government of Canada Built: Intercolonial Railway 
1897 Name Changed Canadian Government Railways (CGR)
1916 Government of Canada Acquires: 510,000 of 600,000 shares in Canadian Northern Railway (CNoR)
1916 CNoR Controlled By: Government of Canada
1918 . Canadian National Railways
For more details on the railways that made up the Canadian Northern System, click the CNoR logo on the left.  This will give you a bibliography of Mackenzie, Mann & Co's expansion into Ontario.  By the time the CNoR arrived in Ontario, there were very few lines to buy up.  To survive, they undertook an expensive railway building program which resulted in their insolvency.
The GTR was the first of the "system" lines in Canada.  It wasn't until the CPR invaded their territory in Ontario that the GTR went on an expensive  buying spree which ultimately resulted in its disappearance into the Canadian National System.  For a short history on the railways that made up the Grand Trunk Railway in Southern Ontario, click the GTR logo. 

Canadian National 2-6-0 #904 (renumbered #82) was typical of the newer second-generation motive power used by the Grand Trunk Railway.  It was built in 1910 by Canadian Locomotive Works, Kingston, Ont as GTR #1002.  Under CNR, the 2-6-0's were used on small branch lines where the track was too light for heavier engines.  #904 is on a climb out of Brockville on the Brockville & Westport.  Date unknown.  Courtesy Brockville Museum.