"For by grace you have been saved through faith; and that not of yourselves, it is the gift of God; not as a result of works, so that no one may boast." Ephesians 2:8-9 (NASB)
In these words, the Apostle Paul destroys all notions of salvation by works. We are saved by the grace of God which is received through faith, and works play no part at all. As the next verse (v.10) makes clear, God has indeed planned for believers to do good works, but as this and many other passages in scripture would affirm, the works are the fruit and not the root of our salvation. True believers do good works, but works play no role at all in how we receive salvation, for it is "not as a result of works."
This much is clear, but questions have arisen as to what exactly is meant by the one word "that" in Ephesians 2:8. We know that whatever it is, it is the gift of God, but can we determine exactly what this gift is?
Some say that the gift is "faith" while others say it is "grace" and still others say it is "salvation." What may be a point of dispute from the reading of the English translations becomes settled when looking into the original Greek text.
Putting it in terms we can hopefully all understand, the Greek word for "that" is transliterated into English as touto and is in a neuter form. The way to determine what it refers to is to look for the other neuter in the immediate context. That's how the issue would normally be resolved, except that in this particular case, there isn't one. "Grace" is feminine; "have been saved" is masculine, and "faith" is also in a feminine form. In this case then, what the "that" refers to is all in the preceding clause. The grace, the salvation and the faith - all of these things - is the gift of God.
Paul is making it clear that nothing in our salvation comes from ourselves. Salvation, grace and faith - from start to finish, all of this is the gift of God, not as a result of works. God has designed salvation in this way for the very purpose of eliminating all grounds for human boasting. Boasting is not merely discouraged, or kept to a minimum, it is completely removed. That is because the entire work of salvation is God's work from start to finish - "this is not your own doing, it is the gift of God" as the ESV renders it. The grace by which we are saved and the faith that is the mechanism through which we receive it - yes, even this faith - is the gift of God. Salvation is of the Lord and all the glory for it goes to God alone.