The ATO has advised that changes to the franking deficit tax offset rules will ensure that the tax offset reduction applies only if a company has made, directly or indirectly, a franked distribution in the relevant income year. In addition, the Commissioner of Taxation will have the discretion to disregard the tax offset reduction if the deficit in the franking account arose because of events outside the company's control. This will have effect from 1 July 2002. Legislation to bring this into effect is contained in Tax Laws Amendment (2006 Measures No 2) Bill 2006 which received Royal Assent on 22 June 2006.
For a copy of the ATO advice, go here