I think that the bikes that the city removes end up in that auction I mentioned a few pages back, the one down at the CNE. I also know that they also auction off bikes that the Police own because the fall auction was full of old police bicycles, the whole fleet actually, as the city got a new contract with Bianchi.
Bikes that the TTC cuts up end on eBay under the police auctions; I got a great Kona Lava Dome Lite for my friend for 10 bucks from one of those auctions.