You can sign up for Shippo at goshippo.com. In the top right corner, there will be a 'create label' option. You can create the label that way. If the label only downloads as a PDF, you can use the Snipping tool on Windows to screenshot the label as a jpg.
Yes, you can purchase a physical label and scan it or photograph it. Keep in mind, if you photograph it, it would have to be pretty clear.
Personally, I would use Shippo. The reason is, you can get a refund (in the form of account credit) if the buyer doesn't go through with the return. Sometimes buyers will open returns and not follow through. After a set amount of time without the item being sent (I don't remember, you can contact eBay and ask them to step in and close the return. but it's probably available on eBay's help pages)
Canada Post Snap Ship is better in that regard, because you will get a refund to your credit card, and not just store credit.
A label is going to cost you $10-$20. If you think the return is genuine, and if the item is worth less than that, you can consider simply issuing a refund without requiring the buyer to return the item. Shrinkage or lost/damaged items is an unfortunate cost of doing business via the mail. For low priced items, it is sometimes cheaper economically (return label cost, stress, time) to refund, close, and then if applicable block and report the buyer.
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