@reallynicestamps wrote:
they were told by eBay customer support that this was the proper way to do it.
And you have a copy of that message? Or did the buyer just tell you that?
If the buyer does not return the item, you do not owe a refund.
The U.S. buyer may have been told by eBay what applies on .com, i.e. that the Hassle Free Returns policy (seller pays return shipping) would apply in the situation where the item arrived damaged (SNAD). I seem to recall it now does. The question is whether a U.S. buyer, buying on .com, is covered by that programme if the seller is Canadian. Regardless, I think the buyer would probably be expecting that to be the case.
I agree with 'recped's' suggestion of offering to reimburse the buyer's return shipping. If the OP feels this buyer is being honest about the damage, I'd probably even send him/her the money for the shipping via Paypal, as 'recped' mentioned.
I'm not so sure about "tweaking" the Paypal label -- it's a good idea on the face of it but could backfire if the label didn't work at the buyer's end (i.e. past the 24 hr limit). The buyer might then lose confidence in the seller and things could escalate.