Returns, Refunds and Exchanges: What Are Your Obligations? (2025 Updated)

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When you’re selling goods, it is important that you know what your legal obligations are to your customers when it comes to returns, refunds and exchanges. For example, recent updates to the Australian Consumer Law (ACL) in 2024 mean that in 2025 you must ensure your policies are fully compliant – read more about how can your business comply with consumer guarantees to stay ahead.

There are many reasons a customer might want to return something they bought from you – from the product being faulty or not matching its description, to the customer changing their mind or finding the item cheaper elsewhere.

Under the Australian Consumer Law, most products purchased in Australia from July 2011 onwards are covered by automatic consumer guarantees that ensure the products do what they have been advertised to do. This means regardless of when your policy was last updated, your obligations remain the same, and it’s wise revisiting your terms periodically.

If an item you sell fails to meet these guarantees, a customer may be entitled to request a repair, replacement, or refund. Your obligations will depend on whether the problem is considered major or minor. For further guidance on these matters, check our insights on setting out good business terms and conditions.

What Guarantees Apply To Your Products?

Each time a customer buys something, consumer guarantees will apply to that product.

As the seller, you guarantee that your goods:

Are of acceptable quality (this includes being safe, durable and free from faults)
Are fit for the specified purpose
Match their description
Match the sample or demonstration model

You are also guaranteeing that:

You will honour any express warranties made; that is, any promises your business makes about the goods in relation to their quality, condition, characteristics, and performance
Your business has title to, and undisturbed possession of, the goods
There are no undisclosed securities on the goods
There is a reasonable period during which the product can be repaired and spare parts are available, unless the customer has been advised otherwise

When Do You Have To Provide A Customer With A Remedy?

When there is a major problem with a product you have sold, a customer is entitled to request a free repair, return, refund or replacement. In certain circumstances, they may even be able to claim reimbursement for any consequential damages or losses incurred. Updated ACL interpretations in 2024 have clarified these rights further.

What Is A ‘Major Problem’?

It is important to know what constitutes a ‘major problem’ so you can ensure your business responds appropriately when a customer raises an issue.

A product has a major problem if:

It is unsafe to use
It is considerably different from its description and/or from a sample or demonstration model
It does not function as promised or as per the customer’s request, and it cannot be fixed easily or in a timely manner
There is an issue with the product that would have deterred a customer from buying it had they known about the defect

If you have disclosed a defect to a customer before they purchased the item, they will not be able to seek a remedy for that defect.

Returns

If a customer believes there is a problem with a product they purchased from you, they are entitled to return it. You must accept the faulty product even if its original packaging or labels have been removed, or if it has been used. For more information on your responsibilities, refer to our guidelines on regulatory compliance.

The customer is generally responsible for organising the return, provided that it is reasonably straightforward. However, if a problem is identified, you may be required to reimburse the customer for reasonable postage or transport costs.

If the return process involves significant difficulty or expense, you may be obligated to collect the products within a reasonable time at no cost to the customer. This particularly applies to large, heavy, or installed items such as dishwashers, washing machines, dryers, or sizeable pieces of furniture like beds.

Ultimately, if the product is not defective, you may ask the customer to repay any costs incurred for transport and inspection; however, you must provide a fair and transparent quote prior to collecting the items. Over-inflated estimates that deter customers from initiating a return are not acceptable under the ACL.

When considering whether to ask for repayment, weigh the financial benefits against the impact on your customer relationships and overall satisfaction with your service.

Refunds And Exchanges

Customers may also request a refund or exchange for products with a major problem. If they choose to exchange the product, the replacement must be similar to the original. If they opt for a refund, the refunded amount should equal the price originally paid, with the refund processed in the same form as the initial payment.

When issuing a refund or exchange, you may consider factors such as:

the type of product
how the customer is likely to use it
the length of time and level of use the product may reasonably be expected to withstand

Repairs

If an issue with a product does not qualify as a major problem, you may choose to offer a free repair. The repair must be performed within a reasonable timeframe, and customers must accept the repair offer.

Should you be unable to fix the problem or if the repair cannot be completed in a reasonable period, your customer may decide to:

Have the product repaired by another provider, with the cost passed on to you;
Request a replacement or refund; or
Seek compensation for the diminished value of the product compared to the original price paid.

Under the ACL, you may also be required to provide your customer with a repair notice before proceeding with any repairs. This requirement applies in situations involving:

User-generated data: For products capable of retaining user-generated data (such as mobile phones, laptops, computers, gaming devices, or similar electronics)
Refurbished goods or parts: When refurbished items are supplied as a substitute for a repair, or if refurbished components are used to rectify a defect.

Reimbursement For Loss Or Damages

You may be required to reimburse customers for any losses or damages if a problem arises that you could have reasonably anticipated – for instance, if you offered a guarantee that you subsequently could not fulfil. The goal is to put the customer in the position they would have been in had the defect not occurred, though you are not liable for losses unrelated to your product.

When Are Customers Not Entitled To A Remedy?

There are circumstances where you are not legally required to provide a return, refund, exchange or repair. For example, if a product is purchased specifically for business use and is worth more than $40,000 (such as heavy machinery), you are generally not obliged to offer a remedy – except where the product is a vehicle used for goods transportation.

You may also refuse a return, refund or repair if the customer has merely changed their mind or if they have contributed to the problem through misuse. Maintaining a strong customer relationship may encourage repeat business, so consider how your policies can accommodate these situations without compromising your legal obligations. For more clarity on consumer rights and your business responsibilities, see our guidance on legal requirements for starting a business.

If the customer is unable to show proof of purchase (for example, a receipt, bank or credit card statement, or confirmation number), you are not required to provide a remedy for a defective product.

What Is The Law Around “No Refunds” Signs?

Stating that there are “No Refunds”, “No Refunds on Sale Items”, or similar declarations is unlawful because it implies that customers will be denied access to appropriate consumer law remedies—even if the goods have a major problem. It is vital that your signage and advertised policies comply with the ACL.

However, you may display a sign to indicate that refunds are not available merely for an incorrect choice or if the customer has experienced a change of mind. For additional insights on establishing clear business practices, check out our article on good business terms and conditions.

Speak To A Lawyer

Understanding your obligations under the ACL is crucial when running a business in 2025, and ensuring your policies reflect the latest legal standards is key. Regularly reviewing your terms and refining your processes can save you disputes down the track.

If you’d like help drafting your store’s terms and conditions or ensuring you’re fully prepared to respond appropriately if a problem with your product arises, get in touch with our friendly team of experienced lawyers. Our small business lawyers are up-to-date with the latest legal developments and can provide tailored advice for your specific situation.

For a free, no-obligations consult, reach us on 1800 730 617 or at team@sprintlaw.com.au.

As commerce continues to evolve in 2025, many businesses are adopting digital return systems and automated customer service platforms to manage refunds and repairs more efficiently. Keeping your policies current not only enhances customer satisfaction but also protects your business from potential legal pitfalls.

Kayleigh Yap

Kayleigh is a graduate in Arts and Law from the University of New South Wales. With an interest in human rights and intellectual property law, she has experience working in communications and marketing for small businesses and not-for-profits.

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