Anja Pich is a commercial lawyer and the Managing Lawyer at Lawpath. She practises across all areas of commercial law and advises businesses of every size, from first-time founders to established companies, on their legal, regulatory and commercial needs.
- A business may sometimes be able to keep all or part of a deposit when the customer cancels.
- The answer depends on the contract, the reason for the cancellation, the business’s actual or reasonable loss, and applicable consumer law.
- Calling a deposit “non-refundable” doesn’t automatically make it enforceable in every situation.
- If the business is responsible for the cancellation or there is a major service failure, refund obligations may apply.
- Before deciding how much to retain, assess the work already completed and losses that can reasonably be avoided.
Wondering what your rights are when it comes to deposits and refunds, and whether or not deposits are refundable by law?
We get it — it may be tricky, but understanding your rights and obligations around deposits is crucial whether you’re a business owner or consumer, as it impacts everything from booking services to purchasing goods.
In this article, we’ll explore the legal framework governing deposits, when they can be non-refundable, and the protections available to both businesses and consumers.
What is a non-refundable deposit in Australia?
A non-refundable deposit is an upfront amount paid to secure a booking, commitment, or future performance. For example, a photographer may require a deposit to reserve a particular wedding date before doing the photography work.
However, a deposit, an advance payment, and a cancellation fee aren’t automatically the same thing:
| Payment type | Meaning |
|---|---|
| Deposit | An upfront payment that may secure a booking, commitment, or future performance |
| Advance payment | Partial payment of the overall price before goods or services are supplied |
| Cancellation fee | An amount payable because the customer cancels under the agreed cancellation terms |
The legal and commercial treatment depends on what the payment actually does under the contract.
Does calling a deposit ‘non-refundable’ mean you can always keep it?
No. Labelling a payment “non-refundable” doesn’t automatically permit a business to retain it.
First, you should clearly disclose the terms before the customer books or pays. Also, the deposit should protect a legitimate business interest, such as reserving a limited appointment, covering preparation costs, or managing losses from short-notice cancellations. The amount should be proportionate to that interest rather than punitive.
Even outside consumer law, a court may refuse to enforce a deposit or cancellation fee that is out of all proportion to the business’s legitimate interest (the penalty doctrine).
Under the ACL, a term may be unfair if it:
- Creates a significant imbalance in the parties’ rights and obligations
- Isn’t reasonably necessary to protect the advantaged party’s legitimate interests
- Would cause financial or other harm if it were relied on
For example, terms that penalise one party for ending a contract may attract scrutiny. The transparency of the term matters, but disclosure alone doesn’t make an otherwise unfair term acceptable.
Can a business keep a deposit if a customer cancels?
A business may be able to keep all or part of a customer’s deposit if the customer cancels. However, whether it can do so depends on the contract, the nature of the payment, the reason for cancellation, and the Australian Consumer Law.
Here’s a quick overview of how deposits work in different situations:
| Situation | What to check |
|---|---|
| Customer changes their mind | Cancellation terms and reasonable business loss |
| Customer cancels after work begins | Work completed and costs already incurred |
| Business cancels | Refund obligations and contract terms |
| Service has a major failure | Consumer guarantee remedies |
| The deposit term is excessive | Unfair contract term risk |
What if the customer simply changes their mind?
A customer changing their mind is different from a customer cancelling because the business has failed to provide a service in line with the ACL.
If a customer simply changes their mind, the business should consider:
- Whether the cancellation policy was disclosed before booking or payment
- How close to the service date the customer cancelled
- What work has already been completed
- Whether non-recoverable costs have already been incurred
- Whether the cancellation resulted in lost booking capacity
- Whether the business can reasonably reduce its loss by rebooking, reselling, or reallocating the work
There is no blanket rule that a business can always retain the deposit just because the customer cancelled.
What if you have already started the work?
The outcome isn’t always “keep everything” or “refund everything”. Decide what to do if you’ve already started work based on:
- How much work you’ve already performed
- Materials specifically purchased for the customer
- Third-party costs already incurred
- Time or capacity reserved for the project
- The value of the remaining work that will not be performed
For example, a client may pay a deposit for a design project and cancel after an initial consultation and preliminary work have been completed. Instead of relying on the words “non-refundable”, the business should assess the value of the consultation and preliminary work, any unavoidable costs, and the extent to which the project remains unperformed.
A partial refund may be more appropriate than retaining the whole payment if the business’s actual loss is lower than the deposit.
What if the business cancels the service?
A broad statement that “all deposits are non-refundable” doesn’t mean that a business can retain customer money even if it can’t deliver services.
For example, if a prepaid service changes significantly and the customer doesn’t agree, the business should cancel the contract and refund relevant prepayments.
The contract may address events outside either party’s control, as well as rescheduling and substitute services. However, those terms can’t remove consumer rights that apply under the ACL.
What if the customer cancels because the service has a problem?
Changing their mind and cancelling because the service isn’t delivering as expected aren’t the same. In the latter case, the customer is exercising a consumer guarantee remedy due to a problem with the service.
If a service has a major problem, the consumer may be entitled to cancel the contract and receive money back.
The refund may not always be for the full amount. The consumer may still need to pay a reasonable amount for work that was properly completed and provided as expected before cancellation.
What if you can rebook the cancelled appointment or project?
A business’s ability to reduce its losses can affect how reasonable it is to retain a large cancellation amount.
For example:
| Scenario | Direction to consider |
|---|---|
| A wedding photographer loses a Saturday booking at short notice and can’t refill it | Greater retention may be easier to justify |
| A consultant fills the cancelled day with another client | Retaining a large amount may be harder to justify |
Don’t simply mechanically calculate damages. Instead, look at the actual commercial losses. If you can rebook the appointment, resell goods, or allocate the reserved time to another customer, that may reduce the loss arising from the cancellation.
Can you keep part of a deposit and refund the rest?
Potentially, yes. In some circumstances, retaining part of a deposit and refunding the balance may be the more defensible outcome.
A partial retention may reflect:
- Reasonable costs already incurred
- Work properly performed
- Unavoidable loss resulting from cancellation
- Clear and proportionate agreed cancellation terms
That said, there is no universal percentage that will be appropriate across all businesses, industries, or bookings.
Is there a maximum non-refundable deposit you can charge?
There is no blanket Australia-wide rule for non-refundable deposits.
However, some industries have statutory caps. For example, deposits for residential building work are capped by state law. Check whether rules apply to your industry.
Older industry guidance has used 10% as an example of a fair deposit in particular sectors. However, this isn’t true for all transactions.
The stronger question is whether the amount is proportionate and reasonably connected to the business’s legitimate costs or interests.
What should your cancellation and deposit terms say?
Clear cancellation and deposit terms can help manage expectations and reduce disputes. They should address:
- The deposit amount
- What the deposit secures
- When the deposit becomes payable
- Circumstances in which the deposit is refundable
- Circumstances in which the business may retain some or all of the deposit
- Cancellation notice periods
- Cancellation fees
- How completed work and incurred costs are dealt with
- What happens if the business cancels
- Consumer rights that cannot be excluded
In addition to a cancellation policy, you may need a Services Agreement or Terms of Trade.
Can a non-refundable deposit clause be an unfair contract term?
Yes. A non-refundable deposit clause may be an unfair contract term if it appears in a standard-form consumer or eligible small-business contract and meets the legal test for unfairness.
In practice, a term may create risk if it allows the business to keep a large payment regardless of:
- The reason for cancellation
- Whether the business has suffered a loss
- Whether work has been completed
- Whether the customer has ACL rights
- Whether the business can rebook or otherwise reduce the loss
It’s important to assess the contract as a whole. A clear, proportionate term that reflects legitimate business costs is less likely to raise concerns than a blanket rule that allows the business to retain all customer payments in all circumstances.
Can keeping a deposit be misleading or deceptive?
It may be. Businesses should ensure that:
- The deposit policy is disclosed before payment.
- The cancellation policy is accessible and easy to understand.
- Advertising, booking pages, invoices, and contract terms are consistent.
- The payment is accurately described as a deposit, an advance payment, or a cancellation fee.
The key issue is whether the overall communication gives customers a clear and accurate impression of what will happen if the booking is cancelled.
Customer cancellation decision checklist
Before retaining a deposit, consider:
- Why is the customer cancelling?
- What does the signed or agreed contract say?
- Was the deposit policy disclosed before payment?
- Is the payment genuinely a deposit or simply an advance payment?
- What work has already been completed?
- What costs have already been incurred?
- What loss will actually result from cancellation?
- Can any of that loss be reduced by rebooking or reselling?
- Does the customer have an ACL remedy because of a problem with the service?
- Is retaining the whole amount proportionate?
- Should all or part of the payment be refunded?
- Have you kept records of the decision, the refund, or the retention calculation?
Worked scenarios
These examples are illustrative only. The outcome will depend on the contract, the facts and applicable consumer law.
| Scenario | Direction to consider |
|---|---|
| The customer cancels months before the service, and the booking is filled by someone else | Full retention may be harder to justify |
| Customer cancels at short notice after substantial preparation | Greater retention may be more defensible |
| Business cancels and can’t supply | Refund becomes central |
| Major service failure | ACL remedies apply |
| Some work is completed before the customer cancels | Consider the value or cost of completed work and the remaining payment |
Key takeaways
Non-refundable deposits can be used by businesses, provided they are properly disclosed to the buyer before the transaction. The total amount must also reflect a legitimate business interest.
The deposit fee should therefore not ‘penalise’ consumers and not be significantly disproportionate to the actual business costs and time incurred for the services provided.
Businesses need to stay vigilant and remain compliant with consumer regulations to avoid any potential disputes or incur heavy penalties. Consult with one of our Consumer Lawyers for tailored advice and assistance suited to your business needs.
FAQs
Can a business keep a deposit if a customer cancels?
A business may be able to keep all or part of a deposit. Still, the outcome depends on the contract, the reason for cancellation, work completed, costs incurred, reasonable loss, and the customer’s ACL rights.
Are non-refundable deposits legal in Australia?
They can be legal, but the label alone isn’t decisive. The term should be disclosed, proportionate, and connected to a legitimate business interest. It must also comply with the ACL.
Does a non-refundable deposit have to be refunded?
It may need to be refunded in full or in part, depending on the circumstances.
Can you keep a deposit if no work has been done?
Possibly, but not automatically. Consider what the deposit secured, if you’ve reserved capacity, if you can replace the booking, and whether retaining the amount is proportionate to the business’s actual or reasonable loss.
Can you keep part of a deposit and refund the rest?
Yes. A partial retention may be appropriate if the business has completed work, incurred unavoidable costs, or suffered a reasonable loss.
What if the business cancels the booking?
If the business can’t provide the service or materially changes a prepaid service without the customer’s agreement, refund obligations may apply.
What if the customer cancels because the service was faulty?
If there is a major problem with the service, the customer may have ACL rights to cancel and receive money back. The customer may still need to pay a reasonable amount for work that was properly completed before cancellation.
Can a non-refundable deposit be an unfair contract term?
Yes. A term may be unfair if it creates a significant imbalance, isn’t reasonably necessary to protect a legitimate business interest, and would cause harm if relied on.
Is a deposit the same as a cancellation fee?
Not necessarily. A deposit is usually an upfront payment to secure a booking or commitment, while a cancellation fee is an amount payable because the customer cancels under agreed terms.
Does a deposit have to be returned if you can rebook the customer’s slot?
Not always, but the ability to rebook can reduce the business’s loss and may affect whether retaining a large amount is reasonable.
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