Torn notes and the rules of legal tender

You're handed some change in a store and the note is torn but stuck back together with sticky tape.Is this legal? Should you accept it and, if you do, will it be accepted next time you make a purchase?

This week I'm explaining what's legal when it comes to notes.

What should I do if I have a damaged note?

If the damage to the note consists of wear, tears, sticky tape or staples, marks or defacement and the note is complete, it can continue to be used. The damage has no impact on the value of the note.

The same applies if there is a piece missing which is less than 20 per cent of the note or there is heat damage which affects less then 20 per cent of the note. These notes are called unfit notes.

While unfit notes can continue to be used, you can assist in the removal of unfit notes from circulation by exchanging them at your bank, credit union or building society.If 20 per cent or more of the note is missing, the note is incomplete.

You can take the notes to most banks, building societies or credit unions who will reimburse you a percentage of the note's face value equal to the percentage of the note remaining. If more than 80 per cent of the note is missing, the remaining portion has no value.

Should I accept a damaged note offered to me in payment/change?

Damaged notes can be accepted safely where there is less than 20 per cent of the note missing or affected by heat, regardless of whatever other damage there is to the note. If you believe that 20 per cent or more of the note is missing, you should refuse to accept the note on the grounds that it is incomplete.

Are damaged notes worth full face value?

A genuine note that has become worn or sustained minor damage in circulation, known as an unfit note, can be exchanged for its full face value.When a piece of a note is missing and the note is incomplete, a proportion of the value will be paid.

The combined value paid for each piece of the note should be the face value of the original note. Note: The factual information in this article has been obtained from the Reserve Bank of Australia.*

Sara Morrison is business development manager at the Warrnambool-based South West Credit.