Using a custom --data-dir under SELinux is not supported. To customize it, you would most likely need to write your own custom policy.

we're using custom data dir ie;

/mnt/rancher/k3s

rather than

/var/lib

dir. how extensive would be the custom policy that needs to be re-written, or there is a single variable that i need tweak only?

I've not tried this, but I wonder if you apply the selinux label to your custom dir; does that do the job?

You can go look at the policy in the k3s-selinix repo and figure that out for yourself.