Thanks for responding R0J0hound. Sorry about the delay, I wasn't alerted to your response.
Please find below the version I have been working on:
This setup allows objects with textures on to be hidden, but this is based on an additional falloff being added and used as an effective mask. This issue I can forsee with this, is if you were to move it up to a solid object, although the light wouldn't go through, and would cast a shadow, the objects on the other side would still be visible.
Also, as CanvasMain is constantly being turned solid black, It prevents me from having a background. Shadows won't appear on objects on a higher layer.
I saw this version (linked below), which only uses 1 canvas, and allows a background, without the need for transparency, etc, however it doesn't work well with multiple light sources.
With yours, I like the way the colour bleeds into each other forming different colours, but can't really see why 2 canvas' are required. I've tried altering bits and pieces, but it seems to be an easy thing to break.
However, I have disabled the falloff visibility toggle every tick, as I don't see any difference. I've also added a distance indicator so that shadows aren't drawn on objects that are too far away from lights.
Still, my attempts at combining the two methods have been met with failure. Any ideas?