The larger, more modern terminal will be located at the base of a proposed 2.5-million-square-foot office complex and elevated park over the rail corridor. The development will eventually be connected to the PATH system.
"This integrated development is a perfect example of how Metrolinx is working to provide travellers with connected spaces, more transit options and better access to the places they need to be," Metrolinx chair Robert Prichard said in a written statement.
"Such a significant hub in the downtown core will greatly improve the quality of life for thousands of people who travel, work and play in this area."
Metrolinx plans to sell the current bus terminal in exchange for a 99-year lease agreement for the new terminal.
"Today's announcement of a new GO bus terminal at Union Station with commercial space above it aligns perfectly with our government's plan to create transit hubs integrated with sustainable employment developments," Transportation Minister Steven Del Duca said.
"This new terminal will welcome GO Transit's fleet of environmentally friendly double-decker buses to downtown Toronto, and will provide more options for travellers in the Greater Toronto and Hamilton Area."
Construction on the development is expected to start in the spring of 2015. The new GO bus terminal is expected to take about three years to build.