Through the influence of then BC Premier Amor de Cosmos, this plan was adopted by Order in Council by the federal government on 7 June 1873.

In 1873, Prime Minister of Canada John A. Macdonald had stated that Esquimalt, the site of a naval base, would be the terminus of the "Pacific Railway".

In 1874, British Columbia threatened to withdraw from Confederation, and BC premier Walkem petitioned Queen Victoria for relief from these delays.

Prime Minister Alexander Mackenzie and Walkem agreed to accept arbitration of the dispute by the Earl of Carnarvon, the colonial secretary.

Despite the promises of both parties to be bound by his ruling, the federal government bill approving the award failed in the Canadian Senate.

John A. Macdonald gave a speech in 1881 in the House of Commons on the CPR and criticized Alexander Mackenzie for tinkering with the preconditions of British Columbia and Vancouver Island uniting with Canada.

Dunsmuir planned to integrate the railway with the systems being built in Washington and Oregon, with a train ferry link from Victoria.

MacDonald gave British Columbia the choice of Dunsmuir or Lewis M. Clement[5] of San Francisco, chief engineer of the Western Division of the Atlantic and Pacific Railroad, for the contract.

Dunsmuir travelled to Ottawa in 1882 with letters of introduction from John Hamilton Gray, one of the Fathers of Confederation, and Joseph Trutch, the first lieutenant governor of British Columbia, both men in favour with Macdonald.

While in Scotland, Dunsmuir received the news that the provincial government had chosen the Vancouver Land and Railway Company controlled by Clement for the job.

Dunsmuir was surprised that Clement would take the contract without a cash grant in addition to the land and commit to building the railway to Seymour Narrows, near Campbell River.

The company applied for compensation and received a further grant of 35,112 hectares (86,763 acres) between Crown Mountain and Seymour Narrows.

Based on an average value of $10 per acre for the land the E&N received, it cost the government $626,660 per mile to build the railway, which when complete was in private hands.

At that time, approximately 8,500 carloads of forest and paper products, minerals, and chemicals were transported by the Southern Vancouver Island Railway each year.

Currently, the right of way and rail line is owned by the Island Corridor Foundation and operated under contract by Southern Railway of British Columbia, a part of the Washington Companies.

After years of work and negotiations, the ICF came to agreements with the Canadian Pacific Railway and with RailAmerica to hand over its Island rail assets to the foundation for tax credits.

The donation tax credit exchange was estimated to be valued at Cdn$236 million and encompasses 6.51 km2 (2.51 sq mi) of land, six historic railway stations and a number of trestles.

[20] On 22 March 2006, RailAmerica donated ownership of the Port Alberni to Nanaimo portion of the railway to the Island Corridor Foundation.

According to the Rule of 100,[24] a generally accepted economic formula for short-line railways, a minimum of 100 freight cars per mile a year is required before a line is profitable due to depreciation accounting.

An ICF development strategies report estimated that 35,000 to 40,000 carloads per year, as the amount of business that would be required to bear the full capital cost of upgrading the railroad and maintain operations on a sustainable basis.

The most significant potential revenue is the Raven coal mine (west of Fanny Bay) needing up to 10,000 carloads per year.

[25] In November 2014, SRY freight service along much of the Duncan-to-Parksville segment of the line was suspended following a risk assessment after the disrepair of the track had been continuously slowing train speeds down.

Beginning March 18, 2011 passenger service between Victoria and Courtenay was "temporarily suspended," due to safety concerns about the poor condition of the tracks.

In April 2007 the Island Corridor Foundation agreed to lease its land in Greater Victoria to the Capital Regional District (CRD) for development of the bike trail.

[citation needed] Construction began in 2009, and as of August 2021 there is approximately 3.6 km left to build to reach Humpback Road, the currently planned western end of the CRD built trail.

[32] In 1996 a BC Transit report proposed renewing the track and enhancing road crossings, to travel 13.3 km (8.3 miles) to arrive over the bridge into downtown Victoria from Station Avenue, Langford.

[33] The travel time was 24 minutes, using the existing track, including stops, and restricting the speed to 25 km/h (16 mph) due to the condition of the railway and street crossings.