The railway was barred from carrying children under 5 as investigators probed the cause of the accident. Four months later, the rail regulator has decided against laying any charges against the country's only narrow-gauge scenic railway.
But it has ordered the company to make major modifications to keep passengers safe.
Driving Creek Railway general manager John Gurney said the safety changes would go ahead once the company had approval from the agency.
"I'm just blessed that the child is still with us and that it wasn't worse," Gurney said.
The toddler fell as the slow-moving ride went over one of the steepest areas of the 3km track, dubbed the Upper Spiral.
He tumbled to scrub below, somehow missing the lower railway tracks. The driver heard a scream and stopped before rushing down into the lush growth of the bank with the father and rescuing the child.
The report demands a series of "corrective actions" to keep paying passengers safe, including:
- Install a secondary latch system for all passenger carriages
- Develop a formal safety policy on how children under 4 are to be seated
- And implement new policy and procedures for staff on how children under-4 travel on the railcars.
The agency recommended the operator redesigns central compartments in two railcars to make sure they are an appropriate height.
It also wants them to do a risk assessment on the rail bridges to ensure the gap between the rails and walkway do not create a hazard for staff or passengers. Until changes are made the ban on children under 5 remains in place.
Gurney said it had been difficult stopping youngsters enjoying the train ride but the company would do whatever it took to get the operation back on track.
The Transport Agency said lessons learned from the accident would be passed on to other rail operators who might be at risk of a similar accident.
