NSW MP Andrew Cornwell was offered $10,000 in a brown paper bag by Newcastle mayor Jeff McCloy before the 2011 state election, a corruption inquiry has heard.
Dr Cornwell told the Independent Commission Against Corruption (ICAC) he was offered the money by Mr McCloy while sitting in the mayor's Bentley.
In his opening address, counsel assisting the inquiry Geoffrey Watson SC said Dr Cornwell handed the money to a Liberal party colleague.
The bag was described as either a brown paper bag or brown envelope full of $100 bills.
"It would seem to us these actions were the result of inexperience," Mr Watson said.
"There is no evidence that Mr Cornwell gave any preference to Mr McCloy."
The money was fed through a company called Harmony Hill and eventually funnelled back to the Liberal Party.
Property developers have been banned from making political donations in NSW since 2009.
In another incident, Dr Cornwell gave Hunter region developer Hilton Grugeon a painting that he insisted on paying for.
Mr Grugeon wrote a cheque for more than $10,000 for an "embarrassed" Dr Cornwell.
Dr Cornwell checked with his parents, both of whom are trained lawyers, and it was determined there was nothing wrong with accepting the cheque.
The cheque was cashed and the money used in Mr Cornwell's 2011 campaign for the seat of Charlestown.
Mr Watson said the inquiry will examine most or all of the Liberal Party finance executive.
Dr Cornwell's office has been contacted for comment.
Councillor McCloy declined to comment on the allegations levelled against him.
"I must wait until I have my turn in the box," he said.
"You'll hear my evidence in a few days."
City of Newcastle Greens Councillor Michael Osborne said Mr McCloy must stand aside as mayor during the ICAC's investigations.
"He should really do the right thing and stand aside so that Newcastle council doesn't get tainted by this air of corruption," he said.