Former Blackburn defender Ryan Nelsen, who is Toronto's coach, has been keen to lure the 36-year-old striker to the MLS outfit.
Davies, who will end his 10-year stint at Bolton this season, did contemplate the switch before deciding against linking up with Nelsen.
"It has been a complete roller coaster since first speaking with Ryan Nelsen on 18th April. As it stands today I will not be leaving for Toronto FC as reported," Davies said.
"My young family and I were naturally very excited about the opportunity of going to Toronto on a short-term deal but after legal advice we felt that certain obstacles put in our way were too large to overcome.
"Whilst it has been the toughest month of my 10 year BWFC career I remain, as I always have done, 100% committed to the club.
"I will be ready if the manager needs me and hopefully have a part to play in helping the club return to The Premier League.
"I have some fantastic memories of the last 10 years and feel honoured to have been the captain of this great club for the last five years. Hopefully it will finish with a fairy tale ending."