Currently the layer action to filter another layer by spatial (not attributes) seems to have a built in buffer and it is selecting polygons that are actually outside of the selecting polygon.
It would be nice to have the option to specify either entirely within or overlapping, as per other selection tools in ArcGIS - eg: Web App Builder selection widget provides options two options for selection mode: one is to select features that are totally or partially within and the other is to select features that are completely within.
A workaround is to create a new polygon layer just for this purpose with a small negative buffer and this seems to work, but adds data management and accuracy issues.
Pic 1 - Map element - Layer action with spatial filter method
The selecting layer is a by-product (dissolve) of the layer being selected, so is a perfect match to the boundaries.
Pic 2 - the neighbouring suburbs are selected, presumably because they touch.
Pic 3 - configure workaround using a negative buffer of the selecting features
Pic 4 - result with the workaround in place
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