The buyer paid you for a whole and useable item. That was not what he got.
You contracted shipment to USPS. (This is the Canada Board. Do you mean UPS the courier?) (Or do you mean CanadaPost/USPS?)
You believe the shipper damaged the parcel and the item.
To begin with, ask the buyer to return the item, including packaging, for a full refund. Do not refund without proof of damage. He should, for his own protection, use a Delivery Confirmed service.
If your packaging was inadequate, you owe him both his original payment and his return postage.
If the packaging was adequate (which BTW means able to withstand a two foot drop followed by having a 50 lb weight dropped on it) and the parcel arrived damaged, you will have to follow up with a claim against UPS/Canada Post.
Postal Services will usually mark parcels they have damaged very clearly.
Note that if the buyer refuses to return the item, both eBay and PP will back you should he open a Item Not As Described dispute. It is their policy that there can be no refund without return.*
*Sometimes, pictures take the place of actual physical returns, if both parties agree.