Yes I admit my Mr Jones scenario was flawed"- I buy $1000 share...

Yes I admit my Mr Jones scenario was flawed

"- I buy $1000 share in company
- it pays $100 fully franked dividend to myself
- I have $130 added to my Personal Income but have only been paid $100 of that due to the fact TAX HAS BEEN PAID!"

No you don't. You get $100 added to your personal income and a Tax Credit for $30 against any other personal tax you pay.
You do not get the $130 This seems to be a misunderstanding on your part. The Franking Credit is not a cash payment, it was never meant to be, it is a Credit against the tax you pay so you're not taxed twice on the dividend.

" tax office says "oh we actually should give you this tax you ALREADY PAID back as you are under what you are allowed to make TAX FREE"

But you did not pay the tax The company paid the tax. You are not the Company. The tax liabilities of the company are separate from the tax liabilities of you the owner.

The Company is one entity - Taxable on the Profit it makes
The Owner is another separate entity - Taxable on the income they receive

If the Owners income in total is such that they pay no tax then they're not entitled to receive a credit on tax paid by their company
The Franking Credit is simply "credited" so the owner does not pay tax twice on the dividend. If you pay no tax to start with you still pay no tax when you do not receive the credit. You don't not pay tax twice if you do not receive the credit.

You are not the Company