Australia Post do at times misdeliver parcels so your buyer may well be telling the truth. I have received parcels which don't even belong to me on more than one occasion as they have been misdelivered. I have also had buyers who haven't received their parcels even though the tracking says delivered. The last one I had, when Australia Post investigated, they acknowledged that it had been misdelivered so they went and collected it and then delivered it to the correct address.

If you have the relevant documentation to be covered under the Paypal Seller Protection policy then you should get your money back.