When Australia introduced a minimum three-year expiry for most gift cards, plenty of businesses saw it as a cost.
Longer expiry. Longer liability. More old vouchers coming back years later.
But the rule also changed the product. A voucher with three years to use feels safer to buy, easier to give, and harder for customers to resent later.
For small businesses, that matters.
A constraint with upside
When the Australian Consumer Law introduced a minimum three-year expiry for most gift cards and vouchers supplied from 1 November 2019, many retailers and hospitality businesses pushed back.
The concern made sense. A longer expiry period meant more open liability sitting on the balance sheet. More customers could appear years later with a voucher from a birthday, Christmas, Mother's Day, or staff reward program. More redemptions would happen after the business had long since banked the cash.
In the narrowest accounting sense, that is true. A longer expiry usually delays when some unredeemed value can be recognised as breakage.
But that is not the whole story.
A longer expiry also makes the voucher easier to buy in the first place. It removes one of the main reasons people hesitate: the fear that the recipient will not use it in time.
That is where the margin story gets more interesting.
The three-year rule does not remove breakage. It changes the timing, improves the customer promise, and gives the business a cleaner basis for tracking what actually happens.
This article is general information, not accounting or legal advice. Your accountant should confirm how breakage and voucher revenue apply to your business.
What the rule says
Most gift cards and vouchers supplied to Australian consumers on or after 1 November 2019 must be redeemable for at least three years from the date they were supplied or purchased.
The rule sits inside the Australian Consumer Law and is enforced by the ACCC. There are listed exceptions - including some promotional vouchers, employee reward cards, loyalty programs, certain re-loadable cards, and a handful of specific categories - but for an ordinary paid gift voucher sold to a customer, three years is the floor.
You can choose a longer expiry. You can choose no expiry. You cannot choose less.
That is the legal frame. The strategic question is what to do inside it.
The margin myth
The original fear was that a longer expiry would shrink margins. The argument went: a gift card sitting unredeemed for three years is a liability that cannot be written off, so extending expiry simply postpones breakage and squeezes the bottom line.
That is true in the narrowest accounting sense. It is far less true in the operational, customer-facing sense.
The three-year rule did not take breakage off the table. It moved when breakage can be recognised, and in doing so it changed the buyer's experience, the staff conversation, and the kind of records the business needs to keep.
Each of those shifts is a small thing. Together, they look more like a tailwind than a hit.
Trust raises purchase intent
The main reason people hesitate before buying a gift card is uncertainty. The buyer worries the recipient will forget. The recipient worries the value will lapse before the right occasion. The gifter worries about looking cheap if a six-month card expires unredeemed on a fridge.
A visible three-year expiry removes a lot of that hesitation at the point of sale. The voucher reads as generous rather than time-limited. The recipient has time to plan around their schedule, the season, or a special event.
That does not guarantee a sale, but it removes one of the strongest objections to buying a gift voucher in the first place.
For service businesses, that effect tends to be amplified. A spa voucher that has to be used in six months is a different product from a spa voucher with three years to plan around. A restaurant gift voucher that pressures the recipient to book within months is different from one that lets them choose their own occasion.
A longer expiry sells the gift more comfortably.
Breakage is deferred, not eliminated
Under AASB 15, Australian businesses generally recognise voucher revenue at redemption, not at sale. Where a business expects to be entitled to part of the consideration without performing, that expected breakage can be recognised in proportion to the pattern of rights exercised - but only where the entity has reliable evidence to support it.
If the business does not have that evidence, the breakage is recognised when the likelihood of the customer exercising the remaining right becomes remote.
The three-year rule does not change the underlying principle. It changes the timing of when breakage can reasonably be recognised, and it gives the business a longer window of evidence to work with.
For the journal entries that go alongside this - including the GST adjustment for face value vouchers - see AASB 15 breakage, in four journal entries.
The three-year rule forces a better system
You need to know when the voucher was issued, when it expires, what has been redeemed, what remains outstanding, what is genuinely expired, and what should be reviewed for breakage.
Historical Australian market reporting has put average gift-card breakage around 6-7%, while noting that it varies significantly by segment and transaction value.
That variation is the important part.
Your breakage is not a universal industry percentage. It is a property of your business, your customers, your reminders, your voucher design, your redemption experience, and the kinds of vouchers you sell.
The three-year rule gives you time to observe that properly.
Redemption uplift and fewer disputes
The best argument for the three-year rule is not breakage. It is customer confidence.
A longer expiry gives the recipient more time to plan. That can matter for restaurants, spas, massage clinics, fitness studios, accommodation, and experience businesses where redemption is not instant. People need to book, travel, coordinate dates, or wait for the right occasion.
A short expiry turns the voucher into pressure. A longer expiry turns it into a flexible gift.
There is also a customer-service benefit. Fewer "my voucher expired last month" conversations. Fewer awkward refund requests. Fewer staff members deciding whether to make an exception. Fewer one-star reviews about a technicality.
Those things do not always show up as a clean line in a margin spreadsheet, but they affect the business.
A voucher that customers trust is easier to sell, easier to redeem, and easier to defend.
What to do with this in practice
If you run a voucher program in Australia, treat the three-year rule as a product constraint worth designing around. Not something to hide in the terms. Not something to apologise for. Not something to treat as dead liability.
A few practical moves help.
01 · Price for the full expiry window. If you sell non-face value vouchers, make sure the price still makes sense if the service is redeemed much later. A named treatment, package, class pack, or dining experience carries cost risk over time.
02 · Sell the expiry as a feature. "Valid for three years" is reassuring. Use it as part of the buyer promise, not just compliance text.
03 · Track the liability properly. Unredeemed voucher balances are not just old sales. They are outstanding obligations. Your accountant needs a clean number at any date.
04 · Track redemption by cohort. Group vouchers by issue month or issue year and watch when they get redeemed. That curve tells you much more than a single expired-balance total.
05 · Consider going beyond the minimum. Some brands may choose four years or no expiry as a positioning choice. That is not automatically right for everyone, but it can make sense if customer trust and brand generosity matter more than early breakage.
| Operating posture | Expiry shown at checkout | Breakage timing | Best suited for |
|---|---|---|---|
| Floor compliance | 3 years | At expiry or when remote | All issuers |
| Generous posture | 4-5 years | Year four+ | Brand-led |
| Lifetime / no expiry | No expiry | Estimated only | Established cohort issuers |
The one thing to action
The ACCC did not squeeze your margins in 2019. It moved them into a longer, steadier, more predictable shape - one that rewards operators who understand voucher economics, and quietly penalises the ones still running their program like it is 2015.
If you only do one thing after reading this: open your last twelve months of voucher sales, group them by issue cohort, and chart redemption against time.
If your curve flattens before year two, you are probably under-selling your breakage estimate. If it flattens at year three, your timing is calibrated correctly, and the rule is working for you.
The three-year rule is not the cost. The lack of records is.