Can tile sit above where drywall terminates? – GreenBuildingAdvisor

We have an intello vapor barrier that slightly slicks out under the drywall at the bottom, this will ultimately be hidden by molding so not worried about this detail. But, currently the drywall sits about 1/4-1/2” off the subfloor. We planned to install thick terrazzo tile (18mm thick) but once the grout and tile is installed, we will be almost an inch higher than the subfloor level, bringing us almost 1/2” above where the drywall terminates. We could leave a 1/4” gap between the tile and the wall so there is a space incase of a water or moisture event, but once the molding is up, wouldn’t it still connect all these surfaces? We considered cutting the drywall up higher, but then we would be slightly above the bottom plate so the drywall wouldn’t have support at the bottom. Also the drywall is currently screwed into that bottom plate so removing it could be difficult. Is spacing the tile away from the wall leaving a gap even though the drywall goes below it ok? I drew a picture for reference.