I'm not sure the taxation rate is or was a huge impact, at least in Ontario. It is obviously more complex than I am understanding, but Ontario taxes railways on a per-acre basis as opposed to some provinces that use a tonne-mile calculation.
For all of the rail infrastructure in the City of Toronto, its tax income is roughly $1.5Mn.
I suspect that even if they were tax-exempt, many lines would have still been unprofitable. CP lost its major Owen Sound Customer when the grain elevators switch to road. Maintaining 110 miles of track for one or two short trains per week made for an expensive rates. Hardly anybody ships less-than-carload ('loose freight') anymore. It's only profitable for high volume/high cost bulk commodities (grain, petro, chemicals,autos, lumber, etc.) over long distances.
Shortline operators have a bit of an advantage because of lower labour costs, but even they struggle. Collingwood gave up and Barrie still subsidizes its line.
The cost of roads is spread out over their users/potential users; i.e. the taxpayer.
They could, but no federal government since 1995 when CN was privatized has shown any interest in getting back into the business. If it was concerned about a national interest or national security, it might have intervened when rail service was removed from most military bases, or when it allowed CN and CP to abandon their Ottawa Valley routes in favour of all east-west traffic going through Toronto. In a few locations, the two lines are close enough to throw rocks at each other.
A rail line to the Arctic
might be in the national interest, but it would be a huge money pit.