Although the idea is a good one it won't succeed until Toronto integrats the GO fares with the TTC. In other words if the GO fare is $5 and TTC $3.50 then the GO Rex fare would be $1.50.
As it stands right now GO rail is a 905 service and has little effect on Toronto travellers. Some of that is due to lower frequency but most due to expense. GO with a TTC pass/fare is damn expensive and most TTC users are middle/low income and those extra fares take a really big bite out of discretionary income and far to much for a lower income person to absorb especially transit heavy users of single parents, disabled, students, the elderly, and new immigrants.
As I stated in another thread, the best way to bring true rapid transit to all corners of Toronto would be to have all transit on GO rail currently offered in the City of Toronto included in their standard Metropass. A calculation could be done to transfer lost GO revenue from the TTC/City Hall and paid for thru new taxes. The new areas in the further flung Toronto suburbs would be far better served than by any Finch/Shep LRT and those funds could be redirected to electrify the system and buy more trains.
The people from Humber/Woodbine area by being able to access Etiboko North station would be downtown before their LRT even reaches the Spadina Ext. By making GO rail usable for TTC patronss it would GREATLY increase residential and commercial TOD near the GO station which currently is non-existent and it's non-existent for a reason..........the service to Torontonians is relatively useless.
The way I see it is that the whole GTHA would be under a unified fare payment and fare zone system. The map that I posted in another thread (https://dl.dropbox.com/u/43869799/GTA System Map - To Scale.jpg) shows exactly that. There would be 3 categories of transit: local transit, express local transit, and express regional transit.
Local transit is the bus and streetcar networks, which wouldn't be subject to the fare zone system, or would charge only a 1 zone fare, regardless of distance. Since most local routes would cross at most 1 fare boundary anyway, if any, it wouldn't be a big deal, and enforcing the fare zones on local routes is much more difficult to do.
The Express Local is things like the subway, LRT, and BRT networks. They would be the base fare plus $1 for each additional zone. That means if the base fare was $3, that people taking the subway in from north of the 401, east of Victoria Park, or west of the Humber would be paying $4 instead of the current $3.
The Express Regional would be GO REX, current-style GO service, and Express BRT (like the 407 Transitway and certain routes on the Mississauga Transitway). They would be the base fare plus $1.50 for each additional zone.
So if you're staying inside 1 zone, it makes no difference what 'level' you use, because it's just the base fare. This would be most of the City of Toronto. For people coming into downtown from the outer 416 or very inner 905, the difference between taking the subway and taking GO REX would only be 50¢. For a lot of people, spending the extra 50¢ to save 15 minutes or more on your commute time is well worth it, especially when for a lot of Scarborough, connecting to a GO REX station would be easier than connecting to Kennedy or Don Mills.
In terms of payment, I think the refund model works best. It's a lot easier to convince people to tap twice if they're getting money back, vs tap twice to pay again. When you tap on a local bus, you're charged the fare, as normal. If you tap onto a subway station, you're charged the maximum fare for that system (3 zones, $5). When you reach your destination and you tap off, you're credited with the zones you didn't travel. So for example, if you stayed in 1 zone, your card is credited with $2. For Express Regional, you'd be charged the full amount of that line, and credited the difference when you tap off at that station.
This all sounds really complicated, but for the user it's pretty simple: tap on everywhere, tap off everywhere. It's time-based, so if you tap on somewhere else after your transfer, it will only charge you the difference between the last system you tapped off of, and the system you're tapping on to. As long as the user remembers to tap, everything should work out. And if they don't, then they don't get their money back.