Upgrade / Backup problem

That is the issue as the backup script creates first a backup file on the card before moving it to the backup media.

Two options you have:

  1. Use backup script from @grahamh [How to] Make periodic backups of whole OSMC system

  2. Make a 1:1 copy of the SD card onto the new card and then increase the partition size to the full 16GB with gparted.